Property bubble a Macroprudential challenge for regulators

October 27, 2014 admin Australian Economy, Australian Housing, Banking Regulation, Sydney Housing Bubble 76

No doubt regulators, today, wish they were not sleeping at the wheel as the challenge on what to do with the world’s second largest residential property bubble start to mount.

The Council of Financial Regulators – comprising of the Reserve Bank of Australia (Chair), the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Treasury – are working diligently on measures aimed to try to bring the unbalanced investor led Melbourne and Sydney property bubbles under control, before it starts to undermine the banking system.

It is understood, slightly less senior members of each council agency are on a working group determining and risk assessing the most appropriate measures and reporting back to the council. The council is expected to brief Treasurer Joe Hockey of their proposal prior to execution.

Earlier this month, Assistant RBA governor Malcolm Edey optimistically said to expect an announcement before the end of the year, however APRA chairman Wayne Byres wasn’t as convincing as he told a Senate Economics committee on Wednesday, it hasn’t reached a point where we have decided anything, going as far to say “it might be nothing.”

One of the challenges of the Macroprudential policy framework is accurately targeting the risky activity without shifting the problem elsewhere. The council has risky loans provided to naive and overconfident property investor’s firmly in its sight. Currently investor loans make up almost half of all lending. It certainly does not want to introduce policy to hinder dwindling first home buyers.

“We’re keeping a close eye on the build up of credit to investors in the housing market, not to owner-occupiers per se and certainly not to first home buyers. They’re not the issue,” said RBA governor Glenn Stevens.

Another challenge for regulators is targeting the specific problem markets. While Australia has a sizeable housing bubble in all states and territories, the current concern is the unsustainable activity in both the Sydney and Melbourne markets. “What the community wants is sustainable competition and sustainable growth, not something that accelerates through the roof and then drops through the floor,” said Wayne Byres.

The most recent data from the Domain Group (formally Australian Property Monitors) suggest house prices are starting to correct in the rest of the country. In the September quarter, Canberra home prices recorded a 1.7 percent fall, followed by Perth with a 1.5 percent decline, Hobart and Brisbane both recorded drops of 1.3 percent and Adelaide fell 1.0 percent.

It is widely expected the regulators will decide to impose capital charges on higher risk investor loans, especially interest only loans. This would require the bank to hold more loss absorbing capital and would likely pass this on to the borrower though higher interest charges. On Wednesday, Wayne Byres said in his opening statement to the Senate standing committee on economics:

First, within our regulatory framework APRA generally seeks to avoid outright prohibitions on activities where possible: instead, our regulatory philosophy is to focus on institutions’ setting their own appetite for risk. We also use the regulatory capital framework to create incentives for prudent lending and ensure that, while institutions remain free to decide their lending parameters, those undertaking higher risk activities do so with commensurately higher capital requirements.

» Banking regulator outlines likely response to housing investor surge – The ABC, 24th October 2014.
» Bank debt ratios expose Basel’s faulty risk weightings – The ABC, 8th October 2014.
» APRA warns bank lending standards are being stretched – The Sydney Morning Herald, 23rd October 2014.
» APRA ready to act on housing – The Australian, 11th October 2014.




76 Comments

  1. The bubble can still be kept going by all the immigrants and especially the foreign investors. Australians are becoming less and less necessary to maintain this bubble.

  3. Lot of merry-go-round but the top-game seems as usual. When majority got lured & locked on cheap drugs(debt), suddenly crash the supply in some unsuspected & different way to excuse the drugs as expensive. Then slaughter(financially) as many as possible to gain more power & wealth.

  4. Recently attended 2 auctions in our street in Parkdale, Victoria that were well attended, big crowd, strong bidding wars. Properties sold for land value only at almost $1 million.
    Ironically, no Chinese. Not even an Asian in sight.
    Work that one out.
    The suburb of Parkdale is surrounded by elite schools, great public transport, a great beach and trendy strip shopping centres.
    According to the Real Estate Agents, Parkdale is a Chinese investor’s wet dream.

  5. There’s no free market forces at all in real estate at the moment, and these regulators are evidence of that. Decisions affecting the entire country are being made behind closed doors and mum and dad investors are totally at the mercy of them. If the stuff it up, they are unlikely to be accountable either.

    Nice work if you can get it, but as we saw with the GFC in the USA, it doesn’t work well to have a central banking system shrouded in secrecy.

  6. @5 Chockolate

    The saddening thing is central banking isn’t shrouded in secrecy at all. It’s created by the elite to protect their stronghold, even increase it, through the use of government sponsorship.

    The Creature from Jeckyll Island will explain it all if you’re interested.

    Sad thing is most people are more interested in watching Collingwood get smashed or Australian cricket or the Rolling Stones……

    Entertainment for the poor to keep them under control:

    A wise man once told me (and I completely believe it)

    The poor talk about people (Kim K, Jennefer Lawrence, Bradgelina etc)
    The middle class talk about events (AFL, Sports, Entertainment, TV, Opera, Theatre etc)
    The rich talk about ideas (New airlines eg Virgin, new Communications eg Facebook, New entertainment eg World series cricket, New Company IPO’s)

    Is it any wonder the rich are getting richer, when the 95% are worrying about Kim K’s massive a#$ or how Buddy could blossom into a superstar? It’s easy pickings for the rich really.

  8. Changing the blood by shafting the locals.Brave new oz.Have you noticed how people are losing jobs everywhere,in all sectors(many after 20 to 30 years loyalty).Massive overheads.Living from week to week.We are experiencing the destruction of the middle class on purpose by intention.All talk by our overlords(regulators) is all spin.They are just reading the script given to them by the “invisible invaders”.It’s like trusting a hungry wolf amongst a flock of sheep.Greed always kills.They are so out of touch and have no concept of the common people’s suffering.Do yourselves a favour,don’t watch mainstream and don’t trust the Libor party.They are complicit in this national tragedy.

  11. Yes, it is a good thing (if I am to be honest here) that ALMOST NOBODY knows that using the “notes” we call “money” today does NOT actually give you real and proper legal title (beneficial and legal interest and use) to any property/land whatsoever.

    I think if the average Joe Sixpack out there knew about and understood the true ramifications of this ABSOLUTE LEGAL FACT, there would be both serious trouble and many questions being asked of Canberra.

    You see, you cannot have REAL money (e.g. either real gold or silver or at least notes that are actually backed by gold and silver in just proportion) and have a housing bubble – not possible when using the real stuff which we have not seen since at least the 1929 bankruptcy of America, Australia, Canada, New Zealand etc

    (See the (Australian and other nations) Financial Emergency Acts ranging from 1929 right through to the mid-1940s.

    This knowledge that almost no one is aware of today is the part that places a cheeky smile/laugh on my face every morning.

    Let me tell you, it pays to have a REAL education sometimes, which cannot be found in mainstream economic or any other schools or universities at all today.

    The (now more or less global again) monetary system we have today was tried and used by early Egypt, Babylon, later Roman Empire (they used real gold and silver in their early years which is what made the Roman Empire such a success for so long in the beginning) and even in early America at certain times (later dropped with a return to proper Gold and Silver commodity money again after its failure). The German Weimar Republic of the 1930s etc

    IT FAILED EACH AND EVERY TIME.

    If anyone can send me an example as to where such a system DID NOT FAIL, could you please send me an email?

    Anyway, I’ll give you all two guesses as to how this all ends….

    For me, this is all merely entertainment.

  12. All this time denying any bubble talk, yesterday the RBA announces “house price crash will not improve affordability”. Did I miss a shift in thinking here?

    Is that one of the early slow leaks of bad news in the wings. Golden rule is not to shock the population, but if they’ve got to eat shit, start them slow.

    I’ve taken it as early acknowledgement

  13. @ 7 I know what ‘A Current Affair’ is trying to say, and factually I’m sure the producers have done their homework, but the report is under-pinned with so many racist comments, and fear-mongering, that I feel ashamed to be Australian. It reminds me of those reports you see of 1950s Britain when people were ‘afraid’ of West Indians “coming here and taking all our jobs”.

    I wonder what would happen if the auctions were conducted in Arabic and were packed with ‘muslims’ wearing burqas! Watch this space Australia – this is only the beginning.

  14. @Claude777

    According “The Hidden Secrets of Money” series (you tube it) there are over 6000 recorded paper backed currencies in history. Each and everyone has failed. There can only be faith in paper currency while the government maintains control. The trouble is, each and every time they expand the currency too quickly in times of trouble and this leads to the loss of faith: People don’t understand that is what is happening, they just see the rich getting richer and the poor getting poorer and their living expenses explode.

    If the government is seen to loose control paper currency fails: Argentina, Zimbarbwe, Post war nations etc: Uneducated people call this hyper-inflation, but what it is, is actually a loss of faith in the government, and hence their value of their currency falling apart, then real stuff become expensive in paper currency terms.

    A big mistake mainstream economists make is that they think hyperinflation is caused by too much currency printing, but that is a symptom, the real cause is a political event.

    When you hand over currency everyone excepts it with out question: But if they new the truth do you think there would be a change of habits? It’s sad to think that while we have a paper currency the hard working labourers earn a few $ per hour, but paper shufflers (think those in the FIRE sector) who contribute nothing to society, earn the highest. One of the directors of Pimpco (The worlds largest bond fund) wrote a letter to his members admitting that his $22B fortune made him physically ill when he considers how little he worked compared to labourers…. Only possible under a paper currency…. sickening

  15. No Patrick, what it means is that there is no need to allow prices to crash. It means that the RBA and government should continue to do everything in their power to keep the bubble growing, because didn’t you know, as long as prices keep rising, affordability keeps rising?

    It also means they think we’re stupid enough to believe any of that.

  16. Too much at stake for the fetid vested interests to want to give up on the bubble. They will continue to pump it up.

  17. 56andoverit – you wait until our collection of clowns lead by Tony ‘The Crusader’ Abbott and Joe ‘Bungle’ Hockey signs the Trans Pacific Partnership (TPP) and the Trade in Services Agreement (TiSA). Good summary below of the Neoliberal rubbish that benefits the top few percent from a UK Blog. Australians are in for a shock when this starts. There is no way we can even start to compete with Asia on cost.

    “Prices fall but quality is reduced; offshore job relocation and automation destroy employment levels; service levels are cut to the bone; physical retail jobs disappear; social and healthcare budgets are cut; trickle-down wealth is nowhere near enough to retain mass consumption levels; recession and deflation are the inevitable end results; short termism reduces vital investment in everything from energy innovations to arts creativity; and cash-strapped governments are forced to turn to unelected money in order to survive”.

  19. Rupert. The real issue with overseas citizens buying Australian property is that it is not always a reciprocal one nor is investment policed. Try buying land in most Asian countries, or try to get citizenship. It is not racist to point this out and the impact it is having on the cost of Australian housing. Successive governments have continued this subterfuge as politicians have a combined $300m property portfolio.They will fuel the property bubble out of self interest.

  20. Why do anything. This will be a self correcting system that will deflate under its own weight of debt. Over the long term property only increases slightly above inflation. This is only a short term blip driven by cheap money and the Chinese need to park their money anywhere but in China. Australian sellers are cashing in and the Chinese buyers are moving their funds offshore. WIN WIN.
    Then it all deflates and we all go back to NORMAL

  21. Nah Max, this is the new normal until we have political representation on this issue.

  22. @ Max

    I agree. This is how I see farming especially. China is buying vast amounts of land all over the country (Don’t tell me this isn’t happening. I have a rural background, I know this is happening as my mates are getting rich off supplying these corporations).

    Now the reality is: If local farmers with generations of knowledge can’t make farming working at record low interest rates, how is some corporation from 5,000miles away in a developing country going to make it pay for itself?

    I believe the Chinese people, coming from a communist country, have no concept of what ‘investment’ is, but rather operate on a ownership model, where the more they own the better in their mind. Problem is they are paying too much, using artificially manipulated fiat, fractional reserve currency, from an unregulated/policed shadow banking system, then on top of that is the vast amounts of hot, corrupt, Chinese official money.

    At some stage it will self correct, the wise farmers will simply walk back into farms for cents on the dollar. But until that day it all looks scary and hopeless. The fact that is has been allowed to happen is the disappointing thing, as it shows Canberra has no concept of sovereignty or loyalty… Ooops, correction, they are loyal to doing their best to never deliver weak GDP numbers, or heaven help two quarters of negative growth.

  23. Max Leverage, this may take years to self-correct. There are still many more billions to pour out of China and into Australian real estate, driving up prices even further. There is nothing to demonstrate that this is a short term blip and nothing to demonstrate it will deflate any time soon.

  24. Labour liberal same thing

    Politician

    1. A person who practices politics.

    “Politics” is derived from the words “poly” meaning “many”, and “tics” meaning “blood-sucking parasites.

    Golden rule:

    He who owns the gold rules

    We are facing a paradigm shift

    We are not a nation. We are part of the Commonwealth. Or

    https://www.youtube.com/watch?v=_aKBbEZciKk

    prepper

  26. If you do not want to be part of this crumbling economy you must get off the citizenship

    You are on a ship.

    prepper

  27. Women on high rise building sites.Doing labouring toil work,on 10 hour shifts minimum,maybe 15 to 20 bucks per hour . Who knows?I remember seeing this,in India in 1980.This is Sydney in October 2014.Unbelievable but true.

  28. Yes…It really does NOT matter whether one votes Labor, Liberal, Greens, Browns, Blues etc.

    Most policy is actually now determined via international Agreements, Treaties, Conventions, Guidelines and whatever else you want to call them.

    For Instance, let’s say the Commonwealth Government wants to borrow 100 Billion Dollars in order to keep the Housing Bubble going for another six months or so (that is, sell Aussie Bonds to overseas investors in exchange for dirt cheap fiat usury money that can be lent via banks, financial institutions etc), then some international Convention or Rule would say “OK, you can have the money but you must implement the fist, third and fifth planks of the “International Rights of the Alien Property Investor” or else you will be severely restricted in both the amount that your government can borrow and the amount interest that must be paid back.

    Generally then, both Labor and Liberal and the Greens, Blues, Blacks and Brown parties will ALL agree to the condition precedents because it is in all of their interests for those increased borrowings to come through as soon as possible.

    The only difference to be had then between Labor, Liberal, Greens, Blacks, Browns or Blues parties is that one party or the other will either slow down or speed up the implementation of whatever condition they are (MANDATORILY) required to follow in order to get the overseas funds coming through.

    Usually there are certain time limits etc as to when a certain international convention or policy must be implemented so the alternative parties check out these time lines and then use some kind of delay tactic (e.g. although Carbon Tax has been removed for now, it MUST BE MANDATORILY IMPLEMENTED either in the old or new form by a certain date in the future or else no further cheap fiat money for property investing will be provided).

    In the bible nations are warned not to “accrue many wives” – this means DO NOT make international treaties with foreign nations of a different ilk to your own because you will pay for it in ways you had never thought of some time down the track.

    So, the future plans are already more or less already laid down, the only difference between the political parties are the time frames and form of eventual implementation of the already pre-planned international policies. To say no is suicide unless your nation is prepared to go back to using, creating and issuing its own money (usually gold/silver or gold and silver backed currency at least).

  29. The only way there will be change is when a new young leader of a new politcal party stands up to the govt, banks, insurance companies, negative gearing laws and all the bureaucracy that limits land release. The existing parties have too much of an interest in property.
    Where is that new leader that will Fight for all the young people struggling to buy a house for their family.

  30. As much as we are in a property bubble, especially Sydney and Melbourne, I can’t see it popping any time soon. Even though the economy is going down the toilet, with massive job losses and declining wages, there are enough cashed up Chinese investors (most likely hot money from corrupt Chinese officials looking to park their money in Australia), to keep it going for a very long time.

    In cities like Sydney, unless you are very rich, or you get an inheritance from your parents, it’s virtually impossible to buy even an average house or unit on the average wage (that’s if you are lucky enough to still have a full time, secure job).

    It seems that Australia has placed all of its economic eggs all in the property market, which produces nothing of value, except making the banks and the real estate industry rich,

  31. @ claudem777

    Our birth certificates are used as bonds for off sure funding

    If the government default taxation of the chattel listed on the bondage certificates is directed to the lender

    We must increase the population (more chattel)…

    60% of us citizens income tax is going directly to the Vatican

    Prepper

  32. What you guys have to remember the government is a management system.

    It’s the ultimate management system.

    Management systems by definition are there to manage existing systems.

    They are not there to improve, assist, innovate, generate or reduce exploitation of said system.

    We all operate in that system. It’s an economic based democracy society. All you have to do is recognize all three points. It’s economic – chase money. Democratic – least corrupt most stable. Society – mass production. Once you realize this target sectors where the majority of society using money is involved in and you will ALWAYS end up doing ‘OK’

    They will NEVER allow property to ‘fall’ EVER. NEVER. To the point where it might damage the management system. They will introduce new management tools to assist in keeping it afloat.

    You guys are living in a pipe dream like the doomsday prepers if you think there’s some point at which australia falls over.

    Look at Japan. Spain. Ireland. Argentina. The US. Dubai. On and on and on. Tell me. Did they ‘stop’ if the average person who already owns a house lose out? What about the ones who rent? There’s a slim slim transitional percent of the population who would have bought a house right on the cusp and during the collapse but they can simply walk away.

    They bleat and scream you can’t walk away from a home loan here. BZZZZZzz wrong. Australia also has a statute of limitations. You can walk away from a home loan. Here’s a neat fact. No one has ever done time for not servicing a home loan 😉 it’s a private institution lending to a private person. The ‘risk’ was all theirs to take and this what it is. Risk. If someone refuses to pay, their isn’t JACK the banks can do. They can kick and scream and shout all they like but if you don’t give them money they can’t do a.n.y.t.h.I.n.g. physically to hurt you. They won’t even put you in jail. You know why… because then you aren’t earning money to pay them back! Plus its illegal. Deprvation of liberty for private debt. HA NEVER in a democracy 😀 It’s beautiful.

    The only way they can put you in jail for a financial crime is if you commit it against the crown. Ie you steal money from a public school or hospital.

    Other than that… in the private system you’re free to do anything you want.

    I’ll shut up now but hope some of you realize you’re free and always will be. You don’t need to ‘prep’

    Just hand yourself over to the system. Find out who makes the most money. Work in that area 😀

  33. Forgot to ad you can go to jail but only if you had premeditated theft.

    How do you premeditate a housing collapse? 😉

  34. I was a boy of 10 or so during 1987 when my dad had to pay 20% interest on a home loan and lost all his investment on the share market. We have learnt nothing from history except now when rate go up people will owe 500,000 instead of 50,000 leaving anyone who has an “average” Aussie mortgage absolutely crippled with interest payments they cannot possibly afford. Rate increases should be factored into the bank lending rules ie calculate possible interest payable in an increase rate environment. All this recklessness leads me to think banks have allowed it knowing down the track profits made from steep interest rate increase will offset the defaults and as banks prepare ownership of real estate agencies expect to see banks managing and renting any of those properties that will be repossessed and managed until the next boom brought on by people being unable to pay the exorbitant rents resultant from a rate increase. The interest payable on Aussie mortgages if it were to be at say 18% for 6 months would absolutely cripple the country. But banks would be laughing all the way to the BANK.

  35. @ Warren..

    Still trying to get my head around that one! Did you used to give Alan Bond legal advice in the 1980’s? I don’t get your point. My understanding about our “economic democracy” is some experience tough luck and pay for it for years, and there are those who do go to jail for committing fraud.

    Don’t know how you’d survive in this country today with no home, no bank account, no job, no credit. Bankruptcy is a hard option…

    I’m sure your a nice fella, but I won’t be loaning you a buck anytime soon.

  37. @Warren, you’re absolutely right about the government not EVER allowing property to fall. They would rather throw Australia under a bus in a heartbeat than allow prices to drop. The ONLY way prices could fall is some external factor out of their control. And that might take a couple of generations or more. In the meantime, if you want to buy your own home in a decent suburb you have to be prepared for a lifetime of slavery or have rich and generous parents, or wait to inherit a fortune.

    Which leads me to my next point – @dean connolly, if interest rates were to go up by a couple of percent, the average mortgage holder would be crippled with payments they wouldn’t be able to meet. Would it cripple the country? There’s no doubt we would go into severe recession, probably depression. Unemployment rates would rise astronomically and there would really would be blook on the streets.

    But as always, there would be a huge group of people, people who have paid off their mortgages, have a property or three who would get a good return on their savings in the banks. By then, Australia might have fallen out of favour with the Chinese, or on the other hand, they might own more than half the country. The gap between rich and poor would widen much much further. But decision-makers are the “haves” so what does it matter to them?

  39. Google video:”How To Be a Crook”.Larken Rose. Simple concise explanation.For the non believers.

  40. The economy is not crashing…..consider a change of name for your site. Its ok to admit you got it wrong.

  41. Don’t worry, you will see a massive and indeed catastrophic drop in house prices within the current generation.

    Mid-2015 onwards is looking very bad at this stage and this will be for an entire generation from that point onwards.

    The Age of Extremes and Excesses is about to end shortly.

    I will gladly write you a Certificate of Guarantee on that one including the multitude of reasons for this.

    Hang tight for just a little longer and you will be ripped and so glad you waited it out just a bit longer.

    Others will have to pay out Mortgages that are much higher than what their houses are going to be worth soon with many people actually being shut out from ever being able to acquire a mortgage again.

    Not having been suckered into all of that, is what I call being tremendously successful in these (largely illusionary) times.

    The ONLY thing that has pushed up house prices has been easy/free money available to anyone with a pulse for more or less gambling/speculative purposes go. As far as actual wealth creation/productivity goes, I don’t think I ever remember seeing so many people doing nothing everyday during the day as I have for the past 12 years or so (especially the last five years).

    So what the hell is truly holding up or raising house prices? Certainly not more or unprecedented wealth creation. We have never been more unproductive than what we are today…

    In fact you could buy in a cheaper regional area today, and in just two or three years sell it and buy one in a capital city/metropolitan area for close to the same price (or just marginally higher) if you work prudently through that option.

    The coming correction is going to be brutal indeed when it finally arrives as there really is NOTHING to justify the irrational increases and indeed maintenance of house prices at the current ridiculous levels.

    If I did not know better, I would almost say it was a purposely inflicted illusion to actually rid people of their wealth rather than the other way around.

    Stay cautious and hang in there, it is going to be brutal when it finally arrives and you don’t want to be one of those left holding the bag trying to sue a banker when the money tin becomes empty so to speak.

  42. Capitalism is history…..Debtism is the new model. It seems like saving to buy a home is not worth the effort anymore. I’ll be 50 before I could save a deposit, after i’ve paid my college debt off and my car repayments. I’ll be dead before I can afford to raise a family. What a wonderful world of debt slavery we have created.
    Our generation is truly fucked

  43. @Paul

    You are kidding right? Not crashing?

    Youth unemployment ~30%. If unemployment measured correctly (like Roy Morgan do) then broad unemployment ~20%.

    The highest personal debt levels in the world.

    Utilities/cost of living far inexcess of inflation.

    All levels of government unable to stabilize, let alone pay off their debts.

    1/3 households cant access $3k in an emergency.

    Oil use at decade lows: Low oil prices even though production has been slashed.

    Lowest interest rates in history, yet retail is bleeding.

    The economy is on life support, with s$%thouse vitals, the outlook is terrible: And you say it hasn’t crashed?

    OMG, I bet you work in the FIRE sector, the largest, most profitable but unproductive sector of the economy: While we have FIAT, fractional reserve currency at least.

    The average Australian barely felt the GFC at the time due to one of the best targeted stimulii’s in the world, but ask most business owners and business has NEVER recovered: Sure some compnaies excelled, and that’s normal, but the broad economy has been faltering for years. When the mortgaged assets (ie. housing) hits reverse in terms of price, watch out, as the Australian economy is in dire trouble: The Australian economy is so debt driven, that only massive loans against assets like houses can keep it growing: The banks know this, the government knows this, the ATO knows this, most economic advisors know this:

    The Australian economy is indeed one big ponzi scheme now: The loans against the same item is getting bigger, and bigger and bigger: Yet the true value of the item cannot outpace inflation/wage growth long term.

    While we currently hear ‘he was smart when he was young, he got into property’ currently, it will turn to ‘he was smart, he avoided getting into debt when young’. This I promise you.

  44. Claude, what makes you so sure? And why mid-2015 in particular? I’m hoping you’re right, but I am a little sceptical, especially since I was absolutely sure prices couldn’t go higher in 2007 when I first realised they had completely decoupled from the fundamentals.

    But then, I did not realise the lengths the government would go to to keep the bubble inflating.

    You say the ONLY thing that has pushed up prices is the availability of cheap credit. That is one big factor but it is NOT the only one. There are so many others that have been put in place to ensure that prices can keep rising beyond the ridiculous levels that they are at presently. Unlimited foreign investment means that prices can keep rising long after Australians can afford to buy. The massive immigration in a quest to urgently grow our population at breakneck speed means that demand outstrips supply. Negative gearing and allowing SMSFs to leverage into property gives unequal favour to investors, so again, it no longer matters if people can’t afford to buy a home. First home buyers now typically buy an investment property rather than a home to live in.

    And to make matters worse, if prices did drop to more sustainable levels, there is a groundswell of potential buyers waiting on the sidelines. Young people live with their parents for longer while saving a deposit. Baby boomer parents who have one or more properties are increasingly helping their children get a foothold into property. And people are inheriting property portfolios and it’s like winning tattslotto.

    And the fundamentals don’t matter. It doesn’t matter that unemployment (and underemployment) is far greater than the numbers quoted. Doesn’t matter that businesses ae struggling or closing. Doesn’t even matter that young people are coming out of uni with HECS fees which they have to pay off in addition to housing. And it doesn’t matter that few people will employ job-hunters over 50 when they are willing and able to work. Neither does it matter that jobs are being sent offshore or given to 457 visa holders who are brought here because of “skilled labour” shortages.

    I know this rant has been a long one but you can see that I have absolutely no faith in any government in Australia. They will absolutely not do anything that they should be doing for their own people. There is one agenda only – propping up the housing bubble and unfortunately, the madness can continue for much longer than you or I can remain solvent.

  46. @Don’t Prop Up the Ponzi

    Look, the media, FIRE industry, International Banking (and even Government sometimes) work on 5 tactics/principles of human behaviour to sell you something or even sell you out as is currently happening.

    These are Fear (Housing: If you don’t buy now BS), Lust, Anger, Greed (Housing), and Jealousy (Housing: The Keep up with the Jones’ deadly Syndrome)and it is fairly much the same with anything that is begin sold to you. It will operate on one or more of the five herein-mentioned attributes (or weaknesses if you like) of human nature.

    The truth is, that the global economic system has been more or less permanently broken since around 2001. Pumping more and more stimulus (buckets loads more of fiat dollars) in the system merely waters down the value of the fiat dollars that are already in circulation or in your pocket/bank account if you like.

    What the international banking cartel are doing these days was also done just prior to the 1930s recession. When the so-called stimulus was pulled (out of necessity) back then it created some serious and unforgettable hardships, with many farms, homes, properties being picked up for a song and a dance (formerly priced to the moon just prior to that crash).

    When stimulus is being pumped into the banking system WITHOUT TRUE CORRESPONDING FUNDAMENTAL WEALTH CREATION TO BACK IT UP (which is what has been happening for a long time) it merely amounts to a serious and (I say deadly and irresponsible) misallocation of resources. Not only that it sets a FALSE VALUE on what the unbacked fiat stimulus is being used to gamble upon (in this case HOUSING/LAND in Australia and it is being done big time for a long time: 2001-2014 but now beginning to peter out ONLY BECAUSE THE AVERAGE JOE SIXPACK/SALLY HOUSEWIFE ARE IN DEBT UP TO THEIR EYEBALLS having bought housing that had a FALSE VALUE SIGNAL due to unbacked stimulus fiat money injection).

    The Ponzi/Gamnbling Scheme that has now run for some 12 years or so in Australia (at least the very severe form we see now) has a natural “breaking point” also. We are about to approach it very shortly.

    Those in government circles etc will get an early tip-off as to when it is just around the corner so watch out for who in government circles are selling off a size-able amount of their real estate portfolio and this is probably the best indication as to WHEN you could probably manage unless you study/research (boring) statistics like I do all the time.

    As I mentioned in my previous article/email, this Housing (Ponzi/Gambling/Speculative) that has been encouraged now for 12 years is NOT BASED UPON CORRESPONDING WEALTH CREATION/EMPLOYMENT OR PRODUCTIVITY INCREASES etc. People are bidding up house prices because the banks are and have been frantically lending watered down fiat money to anyone that has something that sounds like it could be a “Pulse”. This level of lending is historically unprecedented too.

    The so-called “Market” (even when it has been grossly manipulated as it has in Australia since 2001 due MAINLY to the big-time Banking Deregulation that occurred in America in 1999: Namely, the abolishment of the Glass Steagall Act 1933 which formerly prevented banks from running too much amok)ALWAYS ALWAYS CORRECTS TO THE TRUE FUNDAMENTAL POSITION.

    Yes, it can be allowed to run for a very long time because there are many vested interests receiving dividends at the expense of younger generations and even the unborn on the way up (2003-2009 mostly for the largest gains of all), but the activity that you have witnessed for the past ten or more years HAS ALWAYS RETURNED TO THE FUNDAMENTAL TRUE VALUE eventually and it is not a pretty sight at all when it happens (You even get people jumping of windows over fiat money losses, bankruptcy etc)

    And…it was always the same…it cannot happen here…this time it is different…(the Americans were saying this as late as 2008 too).

    I believe it is more a case of those 5 Human weaknesses at work that lead people to disbelieve the very obvious (at least to me) truths and then they end up being also the first to whine and whinge and complain about how they will NEVER DO THAT AGAIN! (After several years of partying like it was 1999 first).

    Just hang in there, it is on its way. China is not stimulating anymore (because they cannot), the Mining Boom never really had much to do with anything anyway (it was mostly and almost solely the easy money being lent to anyone who had something that resembled a “pulse”).

    We have had a gross misallocation of resources and capital going into unproductive ventures that really return little to nothing to the true economy (e.g. Paying 6 to 10 times too much even for dog box housing).

    This has been a gross irresponsibility on the part of many “Vested” interests (done even at the expense of those not yet born), and I maintain it will be brutal when it finally corrects, the cracks of which you should start to hear in the not too distant future.

    Although

  47. @46 Although… if, as you say, the system waters down the value of fiat currency, then wouldn’t that mean my hypothetical $1.5m mortgage will seem rather cheap? If the price of bread and milk go up as a result of currency devaluation through quantitative easing (printing money) etc, then maybe the smart money IS to buy now (I can’t believe I just said that!) but is it? Oh God, I’m confused… and I’m an atheist too – aarrgghh!

  48. QUESTIONS – Aussie DOLLAR

    1. What do folk see happening to the Australian dollar if/as the economy begins to take a downturn?

    2. How / why will these changes occur?

    3. Any historical events to draw from?

    4. Will the Oz government eventually take it upon themselves to ‘tweak’ the Oz dollar?

    5. Maybe it is in these changes that something new, something better, something more authentic begins to take hold?

    Any thoughts much appreciated.

    Glenn

  49. You guys didn’t read me right. Premeditated.

    You can’t premeditate a housing collapse. You can insure against it though…

    Also I’ve given financial advice to quite a few people from Ireland. They’ve moved to australia. Not paid back their home loans. Started again. Used the cash to buy houses back home in central Dublin under their parents names. They are killing it.
    VS their friends who stayed have a degree in IT and work in a supermarket with a home loan 40% in negative equity trying to pay it off. The bankruptcy and limitations has arrived and they are moving back home house paid off.

    There’s always a way to make money and beat the system. You’re not locked into it.

    So many comments are all ‘this will crash that will crash this is over valued thats broken.’

    Here’s news. It’s a democracy. The voting majority will always protect itself! Just ride that wave forever.

    The advice I give to aussies is always the same. Don’t buy negative geared housing. But they don’t care. Mom and dad ‘investors’ especially. I can show them, Stick their offset funds into managed funds split the difference and make more back than the interest savings on top. Nope. Won’t do it. If they have to buy, buy positive geared. Nope I want this off the plan unit that has 10% vacancy and 15% yoy capital loss once complete and it’s negative yielding. It’s not hard. You’d think they would listen to the 28 year old in the SLK. Obviously he knows wtf is going on. God 99% of people in australia have no idea.

    And it’s all high school maths.

  50. @Claudem777

    Long and detailed analysis. Thanks for that.

    As indicated by Ponzi himself, the Ponzi scheme could last a fairly long time before it bursts.

    Oz politicians and other vested interest holders are closely working together in this historical scheme, much bigger than Ponzi’s one. The longer and bigger scale it is, the more damage it will make.

    This is why the whole social-economic system may collapse at a certain point of time. The lucky country may not be lucky anymore.

    Thanks to the admin. We can exchange ideas here and look deeper and deeper into the Aussie Doom.

    It is about time to discuss about necessary protection before the coming collapse of this isolated continent.

  51. Claude, as I mentioned in my last post, I do hope you’re correct. Bubbles and Ponzi schemes always revert to their mean eventually, but have you taken into account all the other factors that do make Australia different?

    Our housing bubble is much bigger than that of the USA. Over there, it was only in certain cities, leaving a lot of places untouched. Here it is in every large city, and we only have a few large cities, giving us far less choice.

    And here, the amount of foreign investment has had an enormous impact on prices – how big, we don’t know, but it has had a trickle-down effect in all areas. The Chinese may not be stimulating any more, but its citizens are still out in force buying up Australian properties and farms. There is a level of corruption in China that we can’t even fathom, and that is how people on low salaries by Australian standards are able to buy millions of dollars worth of property here. And of course our government is complicit in allowing this.

    Of course the bank lending practices have been extremely irresponsible, and are at fault for huge mortgages taken out just to buy ordinary homes that should be half or a third of the price. And you’re right – the fundamentals just don’t stack up.

    I am also aware that all fiat currencies fail eventually, but there is no telling when this one will end. There will be a day when the reserve currency will be something other than the US dollar.

    But the world is a different place now from the 1930s. The internet makes our world much smaller and more immediate. Back then, foreign entities were not buying up real estate in other countries, pushing up prices. Real estate booms came from within, so there was a ceiling on prices.

    I’m not saying you’re wrong, and we really do need a shake-up and shake-out which will depress prices significantly. But as I said, in 2007 I wondered then how prices could go any higher. Now that average prices are 10 times average wages, and bearing in mind that average wages are much higher than median wages, it is now conceivable that average prices could go to 15 or 20 times average wages. Or more. Nothing is impossible. We could have several families squeezed into one house. Or whole families squeezed into a shoebox. Our planning ministers are all for us living like they do in Hong Kong and would be quite happy for us to aspire to live in overpriced dogboxes. We could just have average families living 50 to 100km from the cities. Maybe rent out rooms individually. Just turn whole suburbs into overcrowded slums. Anything, just as long as prices keep going up.

    When you consider the distances between towns and cities, and looking at how most of Australia is empty, it is just inconceivable that we are among the most expensive countries when it comes to the price of land. It is ridiculous that the vast majority of our population is concentrated into a few large cities, and paying dearly for the privilege. But that is what has happened.

    Anyway, come mid-2015, let’s see if you/re right. And I hope you are.

  53. If you want to know how screwed the world economy really is consider these interesting facts:

    1: USA federal government debt is $17Trillion
    2: Prior to GFC there was $1Trillion of USA base currency
    3: There is now $4Trillion of USA base currency
    4: Therefore the USA federal government owes >4X the entire base currency
    5: Gold and silver are below break even price
    6: But there is a lack of silver and gold available for retail sales: At some dealers Silver is out of stock: Low prices, but massive demand. Miners are stockpiling PM’s, but selling at low prices enough to remain solvent.
    7: China has ordered 5,000tonnes of gold
    8: Oil price collapse co-insides with crushing Russia’s internal economy
    9: USA signing unwritten war cheques
    10: Average lifespan of FIAT currency: 40 years: USA left gold backing in 1973.

  54. Yes, I know it is difficult to even imagine that most of this (absolutely Monstrous by Historical and World Standards)housing bubble IS going to come down around our ankles, it really DID (i.e. was permitted to happen and indeed deliberately contrived right up to now) PRECISELY BECAUSE the global financial system literally had finished running its (normal growth as we once knew it) course by around 2001/2002.

    Relatively speaking, this type of fiat/fractional reserve monetary system has NEVER LASTED every time it was used in the past (yes, this is not a new and unique system, later Roman Empire used it: Collapsed completely, Babylon used it: Collapsed completely, Egypt (the very first to use it: Collapsed spectacularly and it was used a couple times in America throughout the 1700s and 1800s each time collapsing brutally.

    These NASTY AND BRUTAL experiences and facts are what led to the line “No State shall use anything but Gold and Silver Coin for the payment of debts” (Can find this in the Australian and American Constitutions of today).

    Just before the collapse of all of the above it was “party time” also in those places just as it has been in Australia and other places for a while.

    We tend to call it “Democracy” but “Democracy” is actually a very inferior form of government. Even a Constitutional Monarchy is better than a “Democracy” in fact.

    “Democracy” is often confused with what people mistaken to mean “Pure Republic” (everyone actually owns their land and children properly – no taxes on land or children ETC.)

    Today we only have a SPLIT-TITLE (legal interest only and NOT both legal AND beneficial interest and use as one has in a PURE REPUBLIC. Even a pure Constitutional Monarchy (as Australia once had prior to 1929) gave people more power of their property, children etc

    What we have today is essentially and legally a SOCIALISTIC form of government. They always die a brutal death along with their financial system.

    Unfortunately these truths and historical facts are not taught in our schools or universities today, hence we are now repeating the same old mistakes of the past which has ended many an Empire/Nation in due course.

    I think the bigger problem people are going to have is not whether or not their house prices/value will be brutally smashed (that is guaranteed) but whether or not they will know how to survive a complete financial collapse which sincerely requires everyone to suddenly care for both themselves AND their neighbour in a way that they have probably never experienced before.

    This will be the only way to make it through then as there will not be any “Woolies” or those “too easy” quick service station meals etc

    Hard to believe, but it was the same for those of times gone by (they could not believe it when it suddenly came upon them). Many perished; Mainly those who did not now how to live differently (without Social Security which covets our neighbour’s goods through the agency of government etc).

    Anyway hang in there, as someone else said “the cracks are just starting to appear” now.

    Hang tight. The Pied Piper is coming.

  55. Around 70% or more of that money shown on the previous graph going into “investor” loans is going to be negatively geared. Imagine how much the government bill is going to rise to support that. It’s a sacred cow I know but they may have to tweak it sooner or later.

    Also look at the AUD it’s now around 86c US and has been trending downwards for a while recently. When the AUD goes down it always puts upwards pressure on inflation and in turn interest rates. The RBA may be forced to hike sooner. I don’t think the housing market currently could handle much more than 3% without seeing consistent falls as it was before they started slashing rates. Imagine if rates were around 4.75 to 5% which is the long term average and where the RBA said they would imagine rates to stabilize at a few years ago until they got scared and started dropping them.

  56. The housing bubble is the gift that keeps on giving if you are looking at it as a member of the moneychanging elite.

    1 generates taxes stamp duties and commissions.
    2 provides employment
    3 generates massive cash flow for the banks
    4 creates an indebted and therefore subservient population of debt slaves.
    5 creates the need for many more government apparatchiks doing all sorts of administrative and planning work.
    6 creates massive sales of all kinds of consumer items related to housing therefore increasing the profits of multinational companies.
    7 creates the urgent need for huge numbers of immigrants to buy all these new houses therefore making immigration an. ” off the table ” political topic. Also helps to dilute Australian culture into a meaningless jumble of barely contained ethnic tensions. Makes the population easier to control!
    8 . The high immigration is then used as an excuse why we need even more houses!!

    As I said the gift that keeps giving…

  57. The housing bubble is the gift that keeps on giving if you are a member of the moneychanging elite.

    A housing bubble.

    1 generates taxes stamp duties and commissions.
    2 provides employment
    3 generates massive cash flow for the banks
    4 creates an indebted and therefore subservient population of debt slaves.
    5 creates the need for many more government apparatchiks doing all sorts of administrative and planning work.
    6 creates massive sales of all kinds of consumer items related to housing therefore increasing the profits of well connected multinational companies.
    7 creates the urgent need for huge numbers of immigrants to buy all these new houses therefore making immigration an. ” off the table ” political topic. Also helps to dilute Australian culture into a meaningless jumble of barely contained ethnic tensions. Makes the population easier to control!
    8 . The high immigration is then used as an excuse why we need even more houses!!
    9. Provides a wonderful easy way to totally destroy the middle classes once they are all leveraged into housing, simply let the massive debt overhang quietly eat years of their productive income, while your bought and paid for political puppets spout on about the need for “austerity”.
    10. Provides a way to differentiate the haves from the have nots. The middle class must be made to take on debt, while the elite hold tangible assets.

    As I said the gift that keeps giving…

  58. The RBA recently issued its latest economic statement and it is still relying on the old, very tired, very damaging and capital mis-allocating “Wealth Effect” that one “feels” when house prices become totally detached from economic fundamentals and reality.

    This means it has ONE FINAL YEAR to run, with 2015 possibly (more than likely) ushering in the first and fairly rapid interest rate increases.

    The interest rate increases will NOT be not on the basis of an improving economy (it will still be crap), but on the basis of a smashed/crumbling AUD Value combined with a severely over-leveraged household economy: Private Debt to DGP .

    What may also happen once the crash arrives with full fury is that one or more of the banks will hang onto several thousand of the defaulted homes (in the better areas at least)and not re-sell them too quickly in order to keep their seriously over-inflated/over-valued mortgage securities books looking a little better than they really are.

    This has happened in America (with several thousand defaulted/underwater homes) of the more sought after locations.

    In several states of America, you could of course just leave the keys behind (Jingle Mail). I don’t believe we have such an option in Australia so the default debts will be more problematic for more years.

    In the the less sought after areas the defaulted homes were either sold at less than half price or rented out cheaply.

  59. The most likely scenario in Australia will be firstly a deflationary recession which will take down asset prices and destroy many businesses. So have your cash ready to buy as it bottoms. Then hang on for the wild ride as governments print enormous amounts of money and serious hyperinflation kicks in. Check out Japan and see what is happening there for a preview of where we are headed.

  61. @60 – Erm, the article cites better value living “costs” not better value “living standards”. We should be careful to differentiate between the two. I’m happy to pay more to live in a suburb of Sydney with low crime, clean air, bushland views, a 20 minute commute to the city and beautiful beaches up the road. You can’t get that in New York or London. believe me, I’ve lived in both those cities, and Sydney is paradise in comparison. Yes, Australia is expensive, but like everything in life, you get what you pay for.

  62. @ max Leverage

    Correct call I reckon, Japan goes first

    Grinding deflation interspersed with increasing reliance on Keynesian QE

    IT SURE MUST BE NICE. for the moneychangers to be the ones with a printing pre$$$ in a country suffering from a deflating government sponsored housing bubble! Nice work if you can find it!
    Then when the economy is totally hollowed out, and everyone is reliant on the latest round of QE, they will call for the good old 2% inflation target to be met. How on earth 2% inflation has any benefit to anything, only a member of the noble priesthood of “trained economists” could tell you.

    This 2% target will then be met by (have a guess) yes you guessed it, more outright debt monetization, otherwise known as money printing!

    The really cool trick for the moneychangers will be if they can get all the western countries currency’s to the same point of worthlessness at around the same time. Then they can present us with a “new” more stable currency, probably the SDR, ( which of course they will control). This will allow the parasites to milk ( you and I ) the host, a bit longer.

    Let the fun continue…

  63. Its amazing how an overseas investor from China can borrow money at 1% from HSBC and invest in property in Australia. I am sure rents in Australia are more than 1% return.

    What hope do Australians as first home buyers have borrowing at 5%. Is this fair?

    Maybe the regulators should look at these sorts of cheap loans and make it a more of a level playing field.

  64. While the Australian banks refuse to increase their capital holdings to safeguard themselves in a downturn, the G20 in Brisbane will be hammering out the details of bail ins. This will involve using depositors/investors money a la Cyprus to save the banks. Does the phrase Moral Hazard ring a bell?

  69. Canberra today.Oz securing free trade deal with China. Wages will go down further.Prestige Sydney property prices to the moon.21 million for unit ,not yet finished,in Bondi.Banana Republic.The 1% haves and the 99 have not.The corporations rule.G20 soap opera of lies.

  70. This land has become a corporate communist state.Does not matter ,if you are a babysitter or Architect ,it’s all 20 to 25 bucks per hour in hand.If you are lucky to have job.

  71. If wages are the same, as they were,30 years ago.Realise the average person’s economic tragedy.Compare the price of houses,and all other goods,then and now.When the bubble pops,and I repeat when(because that is unavoidable).Then the banksters will shaft everyone.Debt will never create true wealth.Oz property is one big gambling casino.As Obummer said yesterday,’greetings Brisvegas!

  72. G20 meeting is all about “Trans Pacific Partnership.” Agenda 21 is unsustainable development.

  73. Well I have to say that this Obama is not only a good Banksters puppet but he is an astounding salesperson as well,I bet he can sell my ’89 Commodore for twice the market price,, I almost bought on that environment thing hes been spruiking.

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