Joe Hockey – No housing bubble, we are different!

October 15, 2013 admin Australian Economy, Australian Housing 37

Australia’s Treasurer, Joe Hockey, has been caught in an interview on CNBC in New York shamelessly spruiking the Australian Real Estate market.

The interviewer asked Hockey, “Let’s talk about the Australia housing, a very favourite topic on my own, close to my heart as I have a home in Sydney I don’t want to see it go under. We have record high prices in Australia, record low interest rates and some worry about a bubble – do you think it is a bubble about to burst and cause a housing crash like America’s experience.

Hockey replied with “Not at all. A lot of commentators, particularly over here, don’t understand the Australian housing market. The fact is, we have a very generous immigration program. And we have very slow supply coming in to the market. Now rising house prices in Australia help to make some of the more marginal new housing developments affordable and realistic and deliverable. And in turn, that increase in supply helps to manage the market. So, Australia is a long way from a housing bubble.”

“And the second thing is many Australians are heading toward personal superannuation that in value exceeds the equity they in their house and that’s part of the balance in the equation.”

“A lot of Australians put a lot of new capital into their homes – renovate their homes, upgrade their homes – and we have the largest homes on average perhaps in the Western World, and the world more generally in size. So it’s a very different asset class in Australia than in other jurisdictions”.

Nobel Prize winner warns on Australian housing bubble.

On Monday, Yale Professor Robert Shiller picked up a Nobel prize in economics for his research into housing asset bubbles. He needs no introduction to frequent readers here – we often publish his Real House Price Index. His research lead to warnings in 2005 that the United State housing market was in a bubble.

He used his prize to warn of the rise of global house price bubbles, singling out China, Brazil, India, Australia, Norway and Belgium.

Shiller said “There are so many countries that are looking bubbly.”

Robert Shiller’s Real House Price Index (Blue)



» Australian Treasurer: US shutdown has taught us a lesson – CNBC, 14th Oct 2013.
» Nobel Prize winner Robert Shiller warns of ‘bubbly’ global home prices – The Sydney Morning Herald, 15th October 2013.
» Nobel Prize U.S. winner warns of “bubbly” global home prices – Reuters, 14th October 2013.
» Shiller’s Nobel win is a nod to the asset bubbles we lived through – Market Watch, 14th October 2014.




37 Comments

  1. More evidence of gross financial corruption and mismanagement from politicians who are out of touch with reality . It is becoming increasingly inexcusable for educated people to continue voting for these incompetent people. The voter has to choose between party ideology or the economic welfare of Australia of which neither has anything to do with the other.

  2. “And the second thing is many Australians are heading toward personal superannuation that in value exceeds the equity they in their house and that’s part of the balance in the equation”

    What does this mean? Sounds like Hockey was on the turps prior to the interview?

    I read it as, when the housing market colapses, boomers will draw down on their super to bail them out, and Generation Y will work 70 hour weeks to pay their pensions?

  3. So he is saying the govt brings in as many immigrants as possible while endorsing supply side constraints, this (along with record low interest rates) is causing house prices to rise further out of the reach of regular Aussies but this somehow makes it more affordable and will increase supply.

    I agree Pete, he must be plastered or a complete idiot! My guess is both.

  4. What a f$%king idiot…. Sorry Admin couldnt hold back on stupidity. He is just as stupid as Swan….. wow come on bubble POP. There are alot of Australians who need a dose of reality badly…….

    THEO who else would have voted for Rudd and his crew… not much choice both are useless as each other.

  5. “… many Australians are heading toward personal superannuation that in value exceeds the equity they in their house and that’s part of the balance in the equation.”

    I nearly choked to death on air. Aussies are nowhere near it. I’m heading toward a 200th birthday Hockey.

    He’s in the land of housing prices never go down, always going up, and the bubble that wasn’t there, did burst. Doesn’t matter how different we are, experiencing a bubble burst, you’ll look at everything else with a touch of cynicism.

    I’d expect a Real Estate Agent to say such a thing, which brings me to my silly note, surely this is nothing to do with the Treasurer, is it?

    http://www.hockeys.com.au/

  6. The trouble is, our superannuation is harnessed to the banks. Good-bye property bubble, good-bye banks.

  7. There must be some club you have to join to become a politician. One where they verify that there is a high level of stupidity. This stupidity is exhibited by Hockey, in the US and elsewhere.

    All they can think to do is create yet more bubbles.

    All we have done is sack one set of clowns from the circus and replaced them with another set of clowns.

    Hockey is really out of his depth.

  8. The only explanation for Sloppy Crockey’s drivel is that he is up to his tonsils in bankster, baby boomer, and housing speculator c*ck.

    Last time I checked, the ex-finance lawyer for one of the big global banks and his investment banker wife owned a number of IPs according to their statement of financial interests, so self-interest no doubt plays a part also.

    The only illuminating thing about Joe and Testertone’s speeches is that they openly admit government support for a two-tier society in which the landed gentry is given preference over would-be owner-occupiers who simply want to raise a family and have title over a basic home.

    Thus, they explicitly support policy that divides the country into haves and have-nots, based upon the lottery of your birth-date (did you get in early enough) or family inheritance (can you be assisted to get into the market).

    The current political rabble are unrepresentative swill, as the role of government is not to enforce measures that worsen wealth and income inequality in such an inequitable fashion.

  11. Well, nice of the real estate to warn us of a $10.00 a week increase in rent starting January 2014.

    I’m over getting screwed in this country. It seems to be run by cashed up bogans, criminals and governmental morons. The Tax is too high is seems to supplement the self-same idiots in the latter sentence.

    So I’m applying for my Euro-passport and leaving. Anything is better than this apparent “lucky country” that seems to have its priorities wrong. It is obvious that it is in a majority of people’s best interests to keep the bubble going and I want a life.

    Good luck to the idiots who pushed house prices up when their children eventually want to buy houses.

    Apart from those on this board, the rest of the country is full of idiots with little perspective on anything outside of their suburban life.

  13. Now rising house prices in Australia help to make some of the more marginal new housing developments affordable…

    Can people really get away with this BS. Since when does rising prices make something more affordable. He really must think we are stupid.

  14. @Over_It – Have you plugged your post code into
    http://www.sqmresearch.com.au/graph_vacancy.php?t=1
    If the number of vacancies is increasing, fire it back to the RE agent and hold your ground.

    I’m finding with all these investors jumping into the market, the number of rental vacancies is increasing. In some cases, I’m even seeing falling rents as they compete for a shortage of tenants.

  15. …sorry, my mistake. Obviously when he said affordable, he meant for the property developers not the potential buyers. That’s our Joe, looking after the little guy.

    Someone should ask Joe if producing less for a higher cost is more efficient than producing more for a lower cost.

  17. A interesting interview with Chris Joye and First Eagle portfolio manager Matthew McLennan.

    Some pieces-
    A lot of people would argue it’s been a successful, oligopolistic, and well-regulated market. But the risk-reward for us investing in an environment where the private sector has built fairly high levels of debt and the structural tailwinds for the economy are becoming structural headwinds, has made it non-compelling for us to spend a lot of time there. There are better non-brainer opportunities for us around the world.

    and housing-
    It is interesting to me when you hear a politician [recently Joe Hockey] saying this is not a housing bubble – that is just a supply-constrained market.

    At the end of the day, I think the Australian housing market is instinctively on the full side of fair value in a situation where the natural constituency, the marginal buyer, is already quite levered.

    I don’t understand why people feel the need to say a market is not in a bubble. I don’t think that’s a prudent approach when you see large levels of leverage and fairly low rental yields. While I get it that you want to support confidence, I don’t know what the upside is in talking down legitimate risks.

    We’ve always made money by not losing money. Ultimately you feel far more confident when a management team tells you what it is worried about than when it displays complacency.

    in full-
    http://www.afr.com/p/markets/interview_transcript_first_eagle_qgIOfuxoKGFCgUuKQDbUaM

  18. Belfast you are right. No other country has such a high percentage of idiots. With abundant resources, breathtaking views, and a public transport system that is the envy of the (third) world, coupled with an intellectually and priorities challenged majority, if you were a politician, reporter, or anyone else making money off the dumb and dummers, you too would be calling it the lucky country, as well as continue to con people with more lies. Ever seen someone stop making money from something coz they got scared of making too much? No. You keep going till it stops.

  19. Some good info on this topic, taken from MacroBusiness;

    Martin Wolf on the contained depression
    http://www.macrobusiness.com.au/2013/10/martin-wolf-on-the-contained-depression/

    The lecture in this article is on YouTube, titled economics;
    http://www.youtube.com/watch?v=1w-pODAjVyE

    It is a long, yet interesting lecture. If you have no time to watch or listen to it, here is a quote, taken from this lecture, posted by commentor on MacroBusiness;

    At 33:10 into the lecture
    ‘The financial sector in the modern western world does not lend for business – business lending is almost insignificant. Its principle job is to leverage up property assets – mostly household but also commercial property – and in the process generate, when you think about it, a massive rise in real prices of this stuff, and massive increases in household debt.’

    This describes Australia to a ‘T’. I think its’ news worse than bubble talk, this is quite worrisome.

  20. @ BotRot
    I watched this today-

    In it he states (around 40 min in) that the UK banks leverage Median was around 50 times assets and around 5 times asset to GDP ratio (US was around 1 times GDP) both the UK and US were around the same asset values.

    Lehman brothers reached 31 leverage levels in 2007

    http://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp

    And our banks-

    ANZ CBA NAB WBC Sector
    Mortgage exposures 255,208 418,544 283,366 399,982 1,357,100
    Mortgage risk weighted assets 43,664 63,637 56,686 58,041 222,028
    IRB-calculated mortgage risk weight 17.1 15.2 20.0 14.5 16.4
    Implied capital held @ 8% Core Tier 1 (APRA) 3,493 5,091 4,535 4,643 17,762
    Implied leverage ratio 73.1x 82.2x 62.5x 86.1x 76.4x
    Implied capital held per $ exposure $0.014 $0.012 $0.016 $0.012 $0.013
    Source: UBS

    He mentions Australia and Canada once or twice to say we are in trouble if Commodities go. Another time to say things are not too bad. (I don’t think he would be aware of our Bank Leverage Ratios though).

    In all a long but interesting piece.

  21. @BotRot

    my favorite part:

    41.03
    ‘My basic rule is when the government tells you there is nothing to worry about, the thing you do is you take your money out.’

  22. @BotRot

    my favourite part:

    ‘My basic rule is when the government tells you there is nothing to worry about, the thing you do is you take your money out.’

  24. @ BotRot
    I watched that yesterday and it was very interesting.

    In it he states that the UK banks leverage Median was around 50 times assets and around 5 times asset to GDP ratio (US was around 1 times GDP) both the UK and US were around the same asset values.

    Another couple of interesting comments at MB were-

    Lehman brothers reached 31 leverage levels in 2007
    http://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp

    And our banks-

    ANZ CBA NAB WBC Sector
    Mortgage exposures 255,208 418,544 283,366 399,982 1,357,100
    Mortgage risk weighted assets 43,664 63,637 56,686 58,041 222,028
    IRB-calculated mortgage risk weight 17.1 15.2 20.0 14.5 16.4
    Implied capital held @ 8% Core Tier 1 (APRA) 3,493 5,091 4,535 4,643 17,762
    Implied leverage ratio 73.1x 82.2x 62.5x 86.1x 76.4x
    Implied capital held per $ exposure $0.014 $0.012 $0.016 $0.012 $0.013
    Source: UBS

    Mr Wolf mentions Australia and Canada once or twice to say we are in trouble if Commodities go. Another time to say things are not too bad. (I don’t think he would be aware of our Bank Leverage Ratios though).

    In all a long but interesting piece.

  25. Apparently the Government will do anything to stop house prices falling. If the market looks like dropping they will legislate that superannuation can be used to pay for home loans that go into the red and increase immigration of rich Chinese and Indians to buy more property. So much for a free market economy……

  26. @BotRot – Excellent video, thanks for posting. I sat down and watched it in it’s entirely tonight. Far too many good quotes to mention.

  27. Can’t believe property prices are still heading to the stratosphere in Oz. How in Gods name can you guys afford them. Must be Asians buying up everything.

  29. Hockey stating that …” many Australians are heading toward personal superannuation that in value exceeds the equity they in their house.” is a blatant lie. Also the housing bubble is due to increase in land prices not the size of dwellings.
    @jj you are correct about the Australia

  30. Not too worry you all too much but this is the type of quote that the Irish politicians were spouting before the property crash….Ireland is different…

  32. What I don’t get is how can house prices keep spiraling out of control, when there is no job security any more, and people are losing their jobs left, right and centre. I just read a Sydney Morning Herald article stating that the Electrolux refrigerator factory will be closing in Orange NSW in 2016, with the loss of 500 jobs, plus many more.

    If people can’t get secure, well paid employment how are they going to afford a large, long term mortgage?

    This property boom just doesn’t make any sound economic sense.

  33. @Master Yoda – most of the demand today is coming from investors – either domestic and funded by their SMSF or foreign e.g. Chinese.

    I think there is still a lot of peer pressure to get on the ladder or to buy investment properties. Your a looser if you don’t have your PPOR and negatively geared IP.

  34. I think housing is as safe as super. Two biggest conjobs of the century. There will be quotes about now. Schoolkids bullying other schoolkids, playing pranks on each other then teasing the poor victim that he’s dumber than an early 2000s home buyer. Or maybe lines like “we couldn’t afford much when I was a kid, my dad was one of those who fell for the property scam of the early 2000s “. I know more than a couple of Japanese people today who are in that boat today. They have dads who borrowed 400k for a house which is worth 50k now. Its real, and it hurts for more than a generation. I think bottom line, if you can afford it, go for it. If you have any doubts, forget about it and just move on, there’s nothing to see.

  35. I just read a Daily Telegraph article where it stated that that the average mortgage in NSW is $500,000. This is madness, sure if you are earning a massive wage or have a successful business then that’s affordable, but most people don’t earn huge wages.

    With the Australian economy turning to custard (every week, there are news reports of job losses), you have to wonder what will happen when these highly mortaged people lose their jobs, or interest rates go up?

  36. Master Yoda, good question. My first response would normally be that there would have to be a lot of forced sales pushing prices down BUT I’m not so sure now. Remember, the government is absolutely committed to maintaining a housing bubble so we don’t know yet what they would come up with.

    There are also a LOT of rich people who have got rich by buying and holding real estate. They would be in a position to battle it out with foreign investors who seem to have no price limits when it comes to buying property. As for the poor people who lose their jobs or succumb to high interest rates and then have to offload their houses, if there are not too many of them they would become “invisible”. In other words, they would just have to cope however they can. Rents are not cheap so it would be hard for them as it already is for so many. But the important thing is that housing prices remain high, and no politician is going to allow the bubble to burst, at least, not if they can help it.

  37. Sadly, because the investor flood gates have opened (NGers, SMSFs, FBs) there is artificially high demand. Therefore, investors would quickly buy up distressed sales.

    Welcome to the new normal.

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