Rational Radical

High in rationale, medium in rhetoric, low in bullshit

The housing crash we had to have: A Gen Y perspective on the bubble

So bubble mania has finally hit the mainstream. The housing bubble question has landed squarely at the feet of the Prime Minister and his treasurer, and only 10 to 15 years late… What a relief it is then to hear our fearless leaders assure us that there is no bubble, endless house price rises are universally a good thing, and that only poor people try to live in houses they can’t afford.

Yet despite their best efforts, Hockey and Abbott cannot pull the veil back down over the hideous monster that is Australia’s 16 year long housing bubble. That veil has now been permanently lifted. The cat is out of the bag and roaming the remorseless realms of the internet meme, destined to immortalise 2015 as the year Australia woke up to the giant private debt and housing parasite leeching the country of prosperity, equality and egalitarianism. Here I was thinking that I enjoyed a monopoly on being a young person who understood that Australia enjoys the worst land/housing/mortgage bubble in our short history (a history with no less than 5 long forgotten housing bubbles that all ended in tears), and is on a collision course with economic and financial disaster.

But now I find out that I have to share my long held and evidence backed eyes-wide-open perspective on our impending financial and economic doom with other young folk who have correctly identified the real estate emperor’s missing clothes. My inner hipster has been crushed by the knowledge that I am no longer a trend setter in financial and economic literacy, and that my only consolation is being able to say “I knew about the bubble before it was cool”. How disappointing that I no longer retain the deeply scorned moral high ground of knowing better than the vast majority of the country’s Team Australia economists and journalists when it comes to the housing bubble.

Sadly I have to now share that honour with the country’s politicians, economists, journalists, and internet dwelling unwashed masses, most of whom have suddenly discovered that we do indeed have a bubble, after being reminded of such by no less than all four local economic regulators, a financial system inquiry, nearly the whole set of international ratings agencies and investment houses in the world, and a vast army of independent economists and analysts who long ago gave up on this country. For whatever reason the treasury secretary John Fraser was somehow able to point out to stunned audiences that there was indeed an elephant in the room, and that its ready to go on a rampage and trash the joint.

I suppose I should be grateful. Now we can all have a mature discussion about just how screwed we are. Which is where of course whingers like me come in. Belonging to the overseas-holiday-and-smart-phone-addicted, perpetually maligned, short of attention and financially illiterate Generation Y, I thought I’d offer my enlightened dissertation on the monumental balls-up that Australia now finds itself in. Aren’t we sick of being lectured by the existing landed classes, older generations and the real estate, banking, media and political circus that pretends to have half a clue about the largest financial, economic and social risk and injustice of our generation? It may surprise them to know that a lot of Gen Ys understand a lot more than we are taken for, and know a bubble when we see one. We do understand the slightest thing about risk, and are now ready to flip the bird in monumental fashion.

Feigned outrage aside, this is not just another hard-done-by social media rant, copied and pasted into blog form owing to the onerous character limit on Facebook posts. It is a serious condemnation of the current state of affairs with respect to housing in Australia. I hope to offer a rarely sought but valuable and unique perspective from a participant in the landless class/generations, who (as those who know me can attest) has been raging against the insane nature and consequences of the Australian real estate abomination for the last 5 years, alienating friends while railing on like some merchant of doom, only to swear he was on the right side of history. Which for the record I am.

Owing to the seriousness and late stage of Australia’s housing bubble, I no longer acknowledge any debate on the existence of the bubble itself. Like climate change, it is a fact. Time to accept it and mitigate the inevitable fallout. Like any rational and intelligent human being considering the question of anthropogenic climate change, I will only endeavour to engage in debate on the housing bubble definition, causes, scale, implications, consequences, solutions, and overall finger pointing.

If you wish to claim you know better, that’s fine, but don’t tell me about it until you’ve at least read the LF Economics submission to the House of Reps 2015 Inquiry into Home Ownership by Lindsay David and Philip Soos, which contains the full and inglorious detailed empirical evidence on the subjects that I summarise below, and is about 1000 times more informative than any real estate brainwashing and circle-jerk economic cheerleading you’ll get from the mainstream media.

So fair warning, this is an entitled Generation Y whinge to rival all others. A rant for the ages. The magnum opus of a landless youth with no one left to direct anger at that will listen. I promise it will be worth it though, so stick with me, you won’t want to miss the ending to this story.

The bubble facts, reason to panic

Let’s be honest, at the heart of their preposterous responses to the bubble subject this past week, is an attempt by Hockey and Abbott to fend off panic. Yes they have conflicts of interest like most parliamentarians including nice houses and investment properties. Yes they are staggeringly inept. Yes they want to see poor people punished for being poor. Yes they want to keep prices high both for their own interests and the interests of wealthy LNP voters. But it really goes without saying that the most politically damaging outcome for the terrible two would be the collapse of the housing market, with the financial system and economy following shortly afterwards. That is the real truth behind political inaction on affordability. No one wants to own the crash. I’m continually surprised by how few journalists identify that plain fact.

The proof of this fear is in the completely contradictory notion that the government wants prices to keep rising but wants to improve affordability. They must be seen to be doing something about affordability, while trying to defend price rises and pin any prospective price falls on Labor and all those meddling “recession clowns”. With real incomes falling for the last 4 years, and set to fall much further in coming years, achieving both of these aims is of course mutually exclusive. More on that later.

First consider that for Joe and Tony to be so clearly afraid of the bubble bursting, and with the hilarious and beautiful timing of Joe putting his $1.5million ranch up for sale, I argue that there must indeed be a bubble, and it will very soon meet the fate that all bubbles eventually meet by definition, and that is to burst. Joe and Tony have inadvertently called the top of the bubble. But don’t take their word for it. Let’s briefly consider the real evidence, definition, reasons and consequences of the housing bubble, and dispel the associated myths.

  • The housing bubble is not new, and it’s not unique to Sydney and Melbourne. It’s not 3 years old, or even 10 years old. Australian housing has been in a nation-wide bubble since 1999, when John Howard cut the capital gains tax rate on residential property. Combined with falling interest rates, this set off an orgy of speculative investment, where speculators predictably saw the combination of negative gearing and capital gains tax concessions as the perfect tax shelter and a government sponsored get rich quick scheme.
  • Economists and journalists like to quibble about whether the last 2-3 years of price action constitutes a bubble. Well there’s only one chart that matters when determining how big this bubble is, and when it started. And it’s truly magnificent:

Australian Housing Bubble 1999 – 2015 (Source: Lindsay David & Philip Soos)

  • Since 1999, real house price growth (adjusted for inflation) has massively outstripped real income growth, real rental price growth and real economic growth. It is mathematically and historically impossible for that imbalance to go on forever. It has never happened in recorded human history, because people need to live in houses. If the average person can’t live in the average house there is no economy to speak of, no one to sell houses to, and nothing left to inflate house prices. If every member of Generation Y decided to go on a buyer’s strike tomorrow, the market collapse would be instant and complete.
  • Like all bubbles, despite the many contributing causes such as tax incentives for speculation, failure to adequately tax land, policy supports, restricted supply, high population growth, greed, cultural obsessions etc, at the heart of the problem is always the cost and availability of debt.
  • Structurally low interest rates and liberal lending standards combined with disposable incomes determine the ability of people to borrow money. People naturally pay what they can afford to borrow. As the saying goes, a house is worth what someone will pay for it. More debt = higher prices. Chronically low interest rates do not make housing affordable and prevent a crash, they cause bubbles, which is why the RBA is currently freaking out about the bubble, albeit many years too late.
  • Private debt is therefore both the cause and the consequence of the housing bubble, and is also what is destroying our once diverse, productive and competitive economic structure, as it crowds out productive investment and lending, and drives up the cost of everything. And of course it’s what causes all the pain when prices finally crash.
  • The most accurate academic definition of a bubble (from Hyman Minsky) is when investment returns (rent) do not cover the cost of investment (interest), so the investor is completely reliant (speculates) on capital appreciation to profit from the investment. This is the definition of the term speculator with respect to asset markets. The proliferation of negative gearing proves this to be the case in Australia. We have had overall net rental losses since 1999. When you have a market dominated by speculators who have negative cash flow, you have a bubble by definition.
  • The national housing bubble has gone through minor corrections several times and each time been bailed out by massive cuts to interest rates, first home owner grants, relaxing of foreign investment laws, enabling self managed super funds to borrow to invest in residential real estate, and other fraudulent policies. We aren’t lucky or exceptional, we just geared our whole economic and taxation system to supporting house prices, and did everything to stop a crash. But with the coming economic downturn and smashed government finances, we are now out of ammo baby.
  • We have almost the least affordable housing in the world compared to every single measure you can compare it to, yet Australia is not exceptional – it is not different here. We just had an extraordinary set of circumstances, and anyone who has studied first year economics understands that specific combinations of circumstances are always cyclical. Like all economies and societies in human history we have boom and bust cycles, and the larger the boom, the larger the bust.
  • I don’t need to tell you that Australia has just had one of the largest economic booms in its history, comparable to the gold rush, when land values in Melbourne escalated dramatically over many years. But economic booms do not guarantee that bubbles don’t burst. Usually the opposite in fact. In the 1890s (post the gold rush), the land bubble burst, causing the Australian Banking Crisis, and real house prices took 50 years to recover from massive falls. If you were born in that era, you would no doubt have been told by parents, friends, bankers and media that house prices always go down. Imagine that.
  • Australia has had no less than 5 prior housing bubbles, in the 1890s, 1920s, 1950s, 1970s and 1980s, and none of them ended well. What to speak of the lessons from the GFC. Why are we not lectured on these by the older generations? In every bubble there is the claim that this time it’s different. History proves that once you have a bubble, it’s never different. But we only learn that once it’s too late yet again.
  • I don’t need to spend any time explaining the exact fallout from a crash. We all know its going to be bad. Can’t we just feel it in our bones?! If you want the gory details, go chat to some friendly folk in Ireland, Spain or the US.

And now to quickly dismiss some of those completely tiresome myths that are repeated ad nauseum by the real estate lobby, bankers and Team Australia economists, the same myths that characterise every bubble in recent history:

  • There is no genuine lack of physical housing supply. If there was a genuine shortage, rents compared to incomes would also have experienced a similar level of growth as prices. That is not the case. Rental growth is currently at its lowest level in decades. While city rents are expensive, they mostly reflect the enormous wage gains that flowed from the mining boom, and not speculative demand fuelled by cheap debt. Although a serious issue for housing affordability, rents are not a bubble.
  • Restricted supply of housing leads to steeper price falls when excess demand is removed. When supply is limited, a small increase in demand leads to a large increase in price. But the inverse is also true, where a small decrease in demand (from say, chronic unaffordability, rising interest rates, investor panic, forced sales owing to rising unemployment etc.) will lead to a large fall in prices, just as swiftly as the rises on the way up.
  • This is exactly what happened in recent bubbles in Ireland, Spain and the US, where everyone insisted for years that there was a massive shortage of supply. Ireland in particular went through a massive surge in construction because of this claim, and suffered much worse price falls because of it. This is exactly what Australia is doing, building into the bust.
  • We do not have safe banks, or responsible lending standards. The Australian Prudential Regulatory Authority is currently working with banks to raise their capital buffers, which have been shown to be woefully inadequate despite the myth of the opposite. This is because major banks have been able to decide for themselves how risky their mortgage portfolios are. When compared internationally, they are no less risky than Lehman Brothers before the US housing crash. APRA is also belatedly enforcing higher lending standards to residential mortgages, as there is deep concern about loan to value ratios, interest only loans and interest rate buffers, to name a few things.
  • Even if we did have responsible lending standards and ultra safe banks, these things do not prevent a bubble from forming or bursting. They did not help Ireland, Spain or the US (or Australia in previous bubbles). All you need for a bubble to form and eventually collapse is cheap debt and the belief that prices will always rise. As discussed earlier, all you need is speculators who require capital gains to earn a profit. 
  • House price speculation is not good for the economy, its actually really bad. It has completely distorted our economy by diverting money and investment away from productive enterprise and business and into unproductive asset price speculation. It has made us uncompetitive, extremely indebted and debt addicted, utterly reliant on export income, un-diversified, and totally pro-cyclical, driving away bellwether value-added economic activity like manufacturing. When the current economic cycle driven by mining and housing fully turns for the worse (which it is already), our economy is toast. We have no resilience or diversity to see us through the hard times. That mythical beast, the “wealth effect” from rising prices, only works when there is more capacity for debt growth and price rises, and supportive economic conditions.
  • Despite the claims of some short-sighted industry types, the currently falling prices in WA, NT and ACT are not proof that there is no national housing bubble, they are proof that the bubble is very close to the top, and majorly fraying at the seams. Only Sydney and Melbourne have been able to maintain the irrational exuberance at this late stage of the bubble with the help of international money laundering and general speculative insanity – proof that the nation’s housing market is on very shaky ground. Wherever you are in the country, the value of your house is at major risk from the coming correction.
  • The last myth is my favourite, the one that seeks a scapegoat. There is no single cause for the bubble, nor a single party to blame. There has been an extraordinary swathe of cultural, policy and tax settings to get us to this stage, and nearly all of us bought the line about “this time it’s different” hook line and sinker, just like every other bubble in history. We gave into greed and ignorant exceptionalism, and when this one blows, we will all share the blame and the pain.

A bubble has a way of consuming the hearts and the minds of the country it infects, like a genuine parasite slowly eating its host alive. We have an inability to see things ever being different, until one day the fog clears, the tide goes out, and we see who is left standing with or without pants on. A common fear amongst the younger generations is that they will never own property. This is what I like to refer to as ‘grey sky thinking’, something I heard a property developer of all people once use to explain this psychological phenomenon. There is always a blue sky somewhere, you just forget it exists when you’re stuck in a storm cloud for 20 years.

As I’ve explained, and history shows, it is impossible for such circumstances to continue indefinitely. There is always a cycle at work, no matter how long the cycle. There is only one way out of this for young people, and that is price falls. The time for solutions like tax reform to save us from this fate has passed. We must still pursue these reforms to prevent the next bubble from kicking off down the road, but we cannot prevent the completion of the bubble cycle. All that is needed is patience. No one bothers to explain this whole back story and actually provide real advice to young Australians. All we get is stereotypes, platitudes and false dichotomy. We are constantly let down by people who should know better. People who should have learnt from Australian history and recent global history exactly how dangerous housing bubbles are.

Bu instead young people are hypnotised by the corrupt and sinister plea to “Buy now or forever miss out”. Ask yourself who it is giving this advice, and who the advice really serves. Apply a little ‘cui bono’ (who benefits) to those real estate industry pimps and pushers.

Its all about risk (and who it belongs to)

A whole generation of leaders and land owners is asking the current generations to accept the poisoned chalice that is Australian real estate. I’ve long said that housing affordability is only the main symptom of the disease, and that the greater injustice is the disease itself, an utterly broken economic model that is wholly reliant on housing speculation, and its sinister ‘comorbidity’ factor: unacceptable financial risk. Unacceptable financial risk is exactly what young Australians are being asked to take off the hands of the landed class, a giant intergenerational transfer of wealth in return for a broken system, just like climate change (apologies, but the analogy is such a good one).

The overwhelming expert consensus is that Australian housing has never been less affordable and more risky. Yet members of Gen X/Y are arrogantly dismissed as spoilt and entitled. Somehow I’m meant to be selfish for rightly pointing out the 20+ years of policy failure (policy rigging) serving the entitlements of existing home owners and speculators, which ruined the productive economy in the process, and for pointing out the terminal risks being thrust upon us. That I’m just an entitled youngster living at home with my folks with inflated expectations, who only cares about how to snag some trendy inner city dive.

This indefensible point of view has been a widespread phenomenon across the Western world in the last decade or so, as those who have benefited from global housing bubbles and rigged financial systems must shoulder at least part of the blame, but instead seek to alleviate guilt by disparaging those on the other side of the fence. Looking at the world post GFC, it’s pretty hard to see how young folks deciding they couldn’t afford a house because they spent too much money on iPhones and didn’t want to live 100km from where they worked, somehow caused the greatest financial meltdown since the great depression. Sorry folks, the answer is private debt and housing bubbles.

The cognitive dissonance of those who defend the status quo is astounding. My publicly professed aspirations as an eventual home owner are meant to somehow preclude me from being critical of economic policy and tax settings that completely ruined our economy, because I’m just entitled. That’s why young folks are finally calling bullshit, and like all bubbles, this one will collapse under the weight of its own hubris and internal contradiction. We’re not selfish, we’re just not financially suicidal. We’re f*ing sensible, and not ready to stand by and take another bolloxing from the powers that be and their indefensible protection of the worst housing bubble in a hundred years.

Young Australians are expected and encouraged – even conned and bribed – into taking on utterly crippling levels of mortgage debt in the assumption that the housing bubble party will continue forever, and that the only way to a secure retirement is to sell your soul for a slice of Aussie real estate. Meanwhile, there is nearly universal acceptance that our housing market is unsustainable in its current form, and a countless list of official warnings from global and local regulators and economic bodies such as the IMF, the OECD, the RBA, ASIC, APRA, international ratings agencies, the Murray Financial System Inquiry, and now arguably our top economic advisor and public servant, the head of the treasury John Fraser. They have all at some time in recent history said we should be very wary of our house prices and the possibility of collapse.

When do the economics editors of the country ever refer to this long list of warnings, and apply it in cautioning young Australians to be extremely careful when considering the risks of entering this current market? How dare these charlatans convince the impressionable younger generations to take on such astronomical risk with barely a mention of these warnings that have repeatedly issued forth from the most experienced and trusted economists in the world. Do Joe Hockey and the tabloid pro-housing spruiker journalists and garden variety real estate agents somehow know better? Are the worlds top economists and analysts just a bunch of doomsayers and clowns? No, they just understand what risk is, unlike the majority of Australians.

Falling prices are coming, and this time they will lead to a self-fulfilling crash

By now it is self evident that house prices must fall to restore affordability. I go further and argue that because of the universal characteristics of a bubble described above, and a backdrop of deteriorating economic conditions and falling incomes, a house price crash is the necessary and inevitable solution to housing affordability.

Given that fact, for young Australians like me, I want to paint a picture of the utterly improbable and devious situation that we are being asked to swallow, by drawing further attention to the contradictory view frequently shared by senior politicians, journalists and writers from an older landed gentry who profess to have a genuine concern for the ability of the next generations to own land at some point in the future, but do not wish to suffer price falls. Or if they begrudgingly admit price falls are needed, the admission is usually coupled with calls for some kind of mitigating policy (such as first home owner grants or allowing access to superannuation for housing deposits or cautioning advice), or counselling caution in reforms in order to ‘avoid distorting the market’, or to ‘avoid a crash’.

In taking this supposedly sensible position, these allegedly well meaning individuals in positions of influence are unavoidably acknowledging the very real threat of a market collapse, and the implications for the economy, financial system, and their own personal assets. But they also feel guilty enough (or possess a conscience enough) to want a solution to housing affordability. They don’t want the market to collapse, but they want young Australians to be able to buy into the market that they know is at risk of collapse…

Think about that for a minute. The notion that making necessary reforms to housing and tax policy might trigger a market downturn and should therefore be offset by some form of stimulus or ‘grandfathering’ of reforms, is a deeply troubling one. If the market is due for a collapse (which it is), it won’t be because of measures to correct the imbalances, it is because of the imbalances themselves.

In other words, most of the economists, journalists, politicians and the landed gentry that they represent, who occasionally advocate for housing reform and solutions to housing affordability, are asking the next generation of Australians to assume all of the risks of the massive imbalances in the housing market, while ensuring that the market is held up long enough for them to pass on that risk. They want us to inherit the enormous risks that they created, holding open the fire escape just long enough to get out before the collapse, which they quietly acknowledge is the most likely eventual outcome.

What a conceited set of leaders and commentators we have. I vainly hope for royal commissions and criminal charges to be laid in some not-so distant future when our livelihoods have been destroyed by the pedlars of Australian real estate who do know better. In Ireland, a country devastated by its own epic real estate bubble with striking similarities to our own, there have been no criminal charges. But there has been an official inquiry. And the results show that the Irish media were complicit and culpable in their unquestioning loyalty to booming real estate and their wilful blindness to the unfailing history of asset/credit bubbles to destroy at least as much wealth as they created on the way up. They were shown to be complicit due to their proven conflict of interest in deriving profits from real estate mania, and no doubt because of a desire to protect their own personal land holdings, and deny any existential threat to their paper wealth.

The long and shameful (and predictable) history of asset bubbles proves that the beneficiaries of the bubble are always victim to a certain exceptionalism, a notion of providence and intelligent decision making that enabled their participation in such windfall gains. The smart investor that got in at the right time. If only there was a way to alleviate the nagging guilt and subconscious fear that eventually there will run out a stock of greater fools to maintain the bubble. Because when there is no stock of greater fools, a self-fulfilling destiny of price collapse follows, as price falls at the margin trigger a rush for the exits by those speculators with negative cash flows who can no longer rely on ever rising prices.

The way to temporarily alleviate this guilt and fear is usually to argue for the economy to catch up to this imbalance between prices and economic fundamentals. The bubble deniers argue that for almost the first time in history, a price bubble will not have to deflate, but that the rest of the world will catch up, justifying the speculative wealth gains achieved by the bubble participants and their exceptional investment choices.

And worse, this exceedingly improbable plan to manage or ‘taper’ the bubble is in direct contradiction to the notion that it is in the interests of those excluded from the bubble to be granted help to participate at this late stage. It is an admission that the bubble cannot go on as it has, but must be preserved in a permanently high plateau to protect speculative wealth gains, and yet sold as a worthwhile risk and investment to the next generation of buyers who will falsely believe that recent price history will repeat itself, but that the long term history of prices matching economic fundamentals – like incomes, rents and economic growth – will not repeat itself. It is disingenuous in the extreme.

This is the cognitive dissonance that our political economy suffers from in huge measure. Everyone with land has a stake in preserving the status quo, even if they do not admit it, and when the vast majority of experts themselves are part of the landed class, we cannot trust their notions of bubble management that masquerade as altruism in assisting people to afford housing at the peak of the bubble. This can only be seen as an offensive disservice to young Australians who don’t know better.

Investment, finance and economics is all about understanding and managing risk, and when we cannot trust anyone to tell the truth about risk, be it media, politicians, family, friends, and certainly not real estate agents, it is the surest sign that we are reaching the zenith of the largest land bubble in Australian history. It should serve as a severe warning to the un-landed masses to avoid at all costs being drawn in to this apogee of risk, just to enable the winners to cash in on their paper wealth, and get out while they can. This is the hot potato that young Australians need to reject at all costs. Let it fail because it must.

For otherwise intelligent and expert commentators and leaders to accept the very real risk of collapse, but to convince the impressionable young to assume that risk is a deeply selfish and contradictory perspective that must be condemned. History will ensure that it is condemned, so for your own sake, don’t fall for the greatest con in living memory. It is inevitable that we will see at least some price falls, and that these price falls will lead to a rush for the exits when there is no longer any policy or monetary levers left to bail out the market. Therefore you have nothing to lose from waiting this out and shunning the housing bubble, and everything to lose from gambling on this sinister and severe level of risk that we will shortly come to understand in all of its emergent horror.

Because what comes next is the housing crash we had to have.

44 Comments

  1. great post!

  2. Man, I’m sick of this bubble talk. That’s the only news these days…. Let’s just let the market sort things out and talk about something more interesting…

    • I assume you’re a Liberal voter with a comment like this. We’ve let the market sort it out for this long and look where it’s gotten us… Homes being unaffordable for first home buyers, with the very real possibility of things grinding to a halt and bringing the very market you refer to, down!

  3. Aaron - Melbourne

    June 12, 2015 at 10:30 am

    Internet high-five Matt! Will be widely shared.

  4. WA bubble trouble

    June 12, 2015 at 6:19 pm

    Australian property investor WILL be taught a severe, dramatic & life changing lesson in being a bone stupid lemming by gearing into an already inflated housing bubble.
    Get ready for masses of firesales & bankruptcy. It won’t happen overnight but will happen!

  5. Given Sydney’s recent massive increase, the following chart comparing Australia’s bubble to America could do with some updating.

    But you’ll get the idea!

    http://www.whocrashedtheeconomy.com/realhouseprices1880to2011.gif

    • Matt Ellis

      June 12, 2015 at 7:44 pm

      Thanks for the great chart John, frightening and staggering. I’ve actually shared this very chart a few times today, explaining to one person that an earlier version of this from about 2010 was one of the original things that freaked me out about housing, given what had just happened in the US. Hats off to whocrashedtheeconomy.com. I’ve spent 5+ years since then educating myself about how much trouble we are in.

      Not just because of our housing bubble, but because of the broken economic model it represents, one that has been pervasive and destructive right across the Western world in the last number of decades since neoclassical economics and the neoliberal agenda kicked off in the 70s / 80s. We’ve just avoided the worst of the fate of other countries because of an extraordinary set of circumstances (eg. commodities super cycle) and policy settings – circumstances and settings that were never going to be permanent, despite being told they were.

      The condemnation of this situation is well deserved, and must be fought for, because it was all foreseeable and preventable. David Lewellyn Smith from macrobusiness.com.au calls it “the dumbest bubble in history”. Amen to that. I would also add “the most sinister”.

    • As someone who lived through the US dot.com and then through the real estate boom and crash that the dot.com bust interest rate climate created, the situation here in Australia is much worse. The high dollar has gutted manufacturing. Our currency isn’t the currency of choice for debt denomination.

      Our real standard of living has already dropped. A crash is just the coup de grace.

  6. Max of Sydney

    June 12, 2015 at 8:28 pm

    Probably the best written article on our housing bubble I have read.
    Not just a broad statement, however an article with interesting analysis to support all parts. Given the people who prop up ‘property investment’ are generally doing it for self interest, its good to see another point of view from what appears to be a neutral standpoint. Consider these:
    ‘The Domain’ which is owned by Fairfax, its in their interest to pump up property hype…
    ‘The Block’ – Ch 9 pumps up property hype
    ‘House Rules’ – Ch 7 pumps up property hype…
    The list is endless.
    I own both property investments and shares, and run my own business, so I have a pretty broad base in all sectors, but this property bubble needs to bust, we need to have some pain, so we can move on and be more productive on the big stage…

  7. I don’t think you’ve considered monetary flows from outside Australia. Mainly, Asian Monetary flows which have the demand to support prices even if our interest rates spike. Also, where do you see the support level if prices do come off. A bubble can be a bubble, sure, but exactly how much will it come down by? Investors are smarter than they were in 1890 and will Enmass start buying back as prices come off. Not to mention the foreign money flows that will see house prices relatively lower (if Aus bursts and nowhere else does) and lob in more. We would have to legislate against foreign investment in our housing market to prevent it… I don’t see that happening anytime soon, do you?

    • There are already laws that govern the sale of residential real estate. They’re just not being followed because they’re keeping the bubble going. The ATO is starting to look into it now, though.

    • Thoroughly enjoyed the article, however was thinking some information on your comment above was missing. Good point.

    • Matt Ellis

      June 13, 2015 at 12:56 pm

      An important issue Jye, but not one that I haven’t considered. I agree that global monetary flows are a serious and formative issue impacting the housing bubble that we have. But to be clear, we created this bubble entirely of our own accord, with our own cheap debt and rigged policy settings.

      The hot money is attracted to the bubble on the upside, as it always is, but will dump it like a sack of bricks when the fear really kicks in. I don’t buy the many arguments that the “unique circumstances and intelligent investors” prevent bubbles from forming or bursting. As explained in the article, I believe the opposite.

      Hot money and “smart investors” are what cause bubbles. When the tide turns, the dominance of hot money ensures that prices take the elevator down. It has always been thus, but we have a tendency to get caught up in grey sky thinking – that things genuinely are different this time.

      I deliberately avoided a more detailed analysis of specific causes and props of this bubble because as stated, they are many and varied, but ultimately matter not when it comes to the unforgiving forces of Mr Market. We are in for a reckoning, and foreign money laundering will not save us.

      • Great advice for one and all: Don’t buy into the top of a bubble!

        You cited Minsky’s definition of the “Ponzi” phase of finance, but are you familiar with the work of Aussie economist Steve Keen of Debunking Economics fame? And the whole Irving Fisher thru Richard Koo, “Debt Deflation Theory of Great Depressions”? The understanding is based on the knowledge — contrary to the neoclassical mythology that banks are neutral intermediaries who lend out their depositors’ savings — that banks “create” the money they lend. This has been known for a century by monetary system reformers, and was acknowledged in 2014 by the Bank of England in their little pdf, Money Creation in the Modern Economy.

        Every bank loan, and every bank purchase of a government bond, involves the creation of new credit money (bank deposits) that adds to the economy’s total money supply; and simultaneously adds to the economy’s total debt owed to its banking system. Every bond redemption and every loan principal repayment takes money back out of the economy, returns it to the bank that created it, and the bank uses the deposit to extinguish the borrower’s debt. Bank lending adds to the money supply (and its debt); repayment of bank loans reduces the economy’s money supply (and its debt).

        Fisher came up with the GDP formula, MV = PQ: money supply times velocity of money spending = average prices times quantity of goods, services and assets that are sold at those prices. During booms, both M and V increase in the general euphoria of wealth. During busts, both M and V decrease in the general gloom of underwater debt.

        Inflows of foreign hot money in some cases contribute to a nation’s inflation. But asset bubbles are typically inflated when a nation’s own banks create new money to finance buyers of the inflating assets. The additional demand money bids up the price of the assets, and the windfalls enjoyed by sellers of inflated assets contributes to spending in the general economy. Everybody is working and selling and making and spending lots of money during booms. This continues past the price where rents justify house prices (or where dividends justify stock prices: each asset class has its own metrics) to the Ponzi phase where only the expectation of capital gains supports ongoing purchases at those inflated prices.

        Then some shock happens — like shoppers balking at the $600k price tag on an ordinary bungalow; or the end of windfall incomes from a mining boom; or a slowdown in flipping time so speculators run out of money to make their interest payments; or general anxiety that the bubble can’t continue so it’s time to sell at the top rather than buy into future capital gains — and puts an end to the credit-fueled demand that supports the bubble. Now speculators and other owners want to sell their inflated assets to cash out at the top, which adds supply into the declining demand, which pushes down asset prices. Rather than rushing to add new bank-issued credit money into the economy buying rising assets, debtors scramble to take money out of the economy by selling falling assets to repay bank loans. This is the debt deflation phase of the asset price cycle.

        Now there is less and less money in the economy, hiring and expanding turns to layoffs and hunkering down, and suddenly everybody feels poor instead of rich as general spending and economic activity decreases. Banks that made mortgage loans based on inflated asset prices, if they now have to mark their asset portfolio to “market” (deflated asset prices), are found to be “insolvent” — just like all the newly unemployed and underwater mortgage debtors who owe the banks money.

        The banking system operates the money payments system. If money is not moving from buyers to sellers, goods stop moving from sellers to buyers. The real economy that delivers food to city grocery stores stalls and crashes along with the banking system. Then you are well and truly f___ed. No government can allow its payment system to fail, so no government can allow its banking system to fail.

        What’s worse, Australia is among the G20 nations who signed onto the new banking system rescue protocol: bail-ins of depositors’ money, rather than taxpayer bailouts of failed banks. Cyprus was a trial run. When the real estate bubble collapses, Australia’s banking system goes down with it. But regulators will recapitalize the banks by using your savings to purchase on your behalf newly issued shares in your failed bank.

        So instead of “having money in the bank”, you will “own shares in the bank”. You “thought” you were depositing your money in the bank for safekeeping. But you were actually using your money to “buy bank deposits” from the bank. Banks issue bank deposits as liabilities against themselves. The bank is “liable” for converting its bank deposits into cash money on demand. If your bank is a going concern, you can spend the bank deposits as money by debit card or electronic transfer; or you can convert your deposit balance to cash money at the ATM or teller window.

        When the bank fails, the bank deposits it issues no longer function as “money”. You invested your money in bank deposits, and the investment went bust, so you lose your money. But lucky for you, your bank regulators will convert your (lost) bank deposits into spanking new shares in your failed bank. Congratulations, bank owner! Can riches be far behind? {Yes, riches can be far behind, when you buy a bungalow for $600k, or you (involuntarily) buy shares in a bankrupt bank.}

        • Matt Ellis

          June 14, 2015 at 1:20 pm

          Hi Derryl, yes I’m very familiar with Steve Keen’s work. For me, his research was integral in inspiring me to take a closer look at the murky world of finance after the GFC. In particular his work on debt acceleration / deceleration determining price rises / falls respectively, and driving the world’s economic cycles was eye opening with respect to our bubble.

          As such, I am deeply concerned about the broader macroeconomic, financial and monetary context and its inherent instabilities and contradictions, and I read more on those subjects daily. With that in mind, in this instance, my focus is on the very crucial and simple advice to people to avoid the catastrophic risk inherent in this late stage of the bubble.

          As is typical when you put out these types of warnings, many people criticise you for being self absorbed, selfish, entitled and focused on “first world” problems. My response is that my chief concern is not affordability per se, its the economic and financial imbalances and risks. When we look at the fallout from bubble bursts and financial collapses in other countries over the last 10 years, one can only conclude that it is indeed a first world problem – but it just happens to be THE biggest first world problem.

          And I conclude that because it is the largest first world problem, when TSHTF, all other issues go out the window – such as social and environmental justice, war, poverty etc. In my view, we must solve the monetary, financial and economic diseases that post industrial neoliberal society and globalisation have created before we can truly solve the intractable human existential threats.

          On those topics, you may be interested in an earlier article of mine, which is largely philosophical more than it is empirical, but it talks much more about the broader ailments we face (of which our housing bubble is a chief flag bearer):

          http://rationalradical.me/2015/03/there-is-no-agenda-for-australian-youth/

          • Housing affordability is not THE biggest first world problem, but there is deep intersectionality between many problems in this country.

            Those people who claim it is unimportant should fuck off.
            Try living in this country if you have a severe disability that limits your ability to work. Living with the nearby ‘undesirables’, graffiti, drugs, DV etc.

            The population has long demanded high housing costs. Why? Because it is considered too hard to solve these social problems. The middle/upper classes would have to make an effort to solve the problem and pay higher taxes. So they’d rather just hide the problem. Push them as far away as possible.

        • What to do then to escape the fallout?. I shouldn’t buy property now but Inwont be able to buy later as my money in the bank will be converted to bank shares that are worth nothing?. What is the right strategy, sounds like buying a property you can live in even at inflated prices would be the better move??? Any one got advice on this front please????

  8. Staggeringly good piece. Virtually every issue addressed. Couldn’t have said it better myself.

  9. You’ve made my day. Written with passion and dare I say a little mordant wit.
    I’m sending it on to my daughter who got on the train when prices were more ” reasonable”. She was suffering from FOMO and went to the bank recently to try for $500k of more debt to buy an IP but they declined thereby doing her an enormous favour. Be patient. At least you’ll be able to say I told you so.

  10. I am looking forward to the fire sales even if I have to wait yet another five years. I have waited since 2003 already and it does not bother me one iota to wait yet another five years until the bubbles to end all bubbles is either finally permitted to bust, or is forced to bust due to uncontrollable forces.

    I have long held the position and well-researched and informed opinion that the average house in the average suburban area near the average city (such as boring old Adelaide for instance) should be valued at no more than $135,000 (average nothing special 2 bedroom brick) or $175,000 (larger 3 or even 4 bedroom Joe-Sixpack style brick home).

    Even these valuations I consider are correct at the absolute middle of a cycle.

    I have never budged from this view as I have seen nothing in real economic terms to suggest that these values should be any higher other than the usual inflation that comes with using fiat paper money instead of gold-backed real money.

    I investigated the reason for why average house prices were being severely distorted (up to $600,000 or more for what should be no more than $175,000) and basically found that there was an endless abundance of cheap money/debt flowing into the country and thereby could not justify the housing bubble prices of the last 12-15 years on any realistic or fundamental economic production or improvements.

    If anything I had never seen so many people either sitting in cafes drinking caffe lattes all day or spending long weekdays and weekends at the Pokies blowing hundreds at a time (in just a few minutes).

    I knew then that something sinister was at hand which has sincerely troubled me for several years now. I decided not to buy and have held off for several years waiting for the big day of reckoning.

    Banking deregulation (such as the removal of the Glass Steagall Act 1933 back in 1999 which limited the banks’ abilities to enter into speculative financial activities) may have a great deal to do with the arrival of all of this cheap and nasty fiat money/debt, however, the distortions it is creating to economies is very troublesome.

    It has a ring to it that one would expect to see at the very end or use-by date of any given financial system as we had once known it.

    It is perhaps a good thing that most people are not aware that they now possess an inferior legal title to their property as opposed to the better legal titles that people in the days of gold-backed real money. They would probably head to Canberra asking for heads to roll.

    • You should have bought ten years ago.

      • Matt Ellis

        August 18, 2015 at 8:00 am

        Is that what you do/would tell your children? What an idiotic truism that is. If you read the article in detail, you’d know that my concern is not the ability to afford a house for myself, but the complete destruction of a stable and sustainable Australian economic model through a set of monumental miscalculations and cultural hubris, the sort that you display here. We are in a lot of trouble people can’t see the challenges ahead and how they relate so closely to our world-beating housing bubble.

        To put it another way, I don’t want a damn mortgage, I believe true financial security can never involve extreme leverage, and I’m happy with those personal choices. But I DO want secure employment, a diverse economy, and a country that finally pulls it’s head out of it’s arse.

  11. Best article I have read in a very long time. Thank you for taking the time to put into words what I felt in my heart, gut and head. I feel blessed to have remained out of this market and I will continue to save my money for the time when many others have lost theirs. Great work!

  12. Interesting comment there from Claudem777 re prices in Adelaide (for example) should be around $175,000. My only critique to this/ question for him is how does this estimate compare with the actual current construction costs of a new build? Shouldn’t this affect the current price and as a consequence make it higher? What about land value? By your reckoning it seems like if houses were still around $175,000 now there would have been no inflation? Can’t some price increase be accounted for simply based on inflation alone? Or are you suggesting that inflation itself has been driven by cheap debt too?

  13. Something I’ve never seen anyone talking about it is the foreign investors who are buying in cash . so basically they don’t care if interest rate went up . if they are significant proportion of the market then the crash might be small, isn’t it ?

    • I agree. the article has completely ignored foreign investment. The capacity for foreign buyers with cash to influence the price of australian property is equal or greater to that of the leveraged local investor. Any drop in pricing will be small and unsustained.

    • Those who are individually quite wealthy (the 1 percent or so of the global population) accumulate residential properties as something approaching collectibles. A home in every port, so to speak. Price is not really a consideration because they cannot possibly spend the “rents” derived from the assets they hold. Others, less wealthy but still very well off, participate in this market as speculators and enablers, turning over properties every so often for profit and taking fees from transactions in which they bring parties together. Unfortunately, this credit-fueled, speculation driven collectibles market has very destructive long-term ramifications for a society engaged in goods production and the delivery of services.

      As businesses strive to protect profit margins, they do all they can to reduce the number of people employed and the wages paid to those who remain. Global knowledge transfer capabilities allows many businesses to relocate to regions where the overall cost of doing business is sufficiently low to return adequate profits (and satisfy the financial market analysts demand for ever-increasing earnings reports).

  14. What a boring rant. I’m sure you made a few valid points but I’m only guessing as I stopped reading after the first 12 paragraphs of irrelevant drivel.

    Try getting to the point quickly (whatever your point is/was) and you might grab the attention of the reader.

    This isn’t criticism of your point of view, this is criticism of your ability to write a interesting article.

    Cut it in half, get to the point sooner and then maybe you can label yourself a writer,

    Best of luck next time.

    • Lol… Enjoyed article. Enjoyed the pace.

      • Matt Ellis

        June 14, 2015 at 8:21 pm

        Sadly the important stuff is often the most boring. The detailed and conceited history of policy failure and the scale of the consequences are such that digest length news/editorial articles can’t come close to covering this disaster.

        I strongly encourage you to read the above linked 40 page submission to the housing affordability inquiry (the only submission so far…), which is sure to put you to sleep with the gory details of exactly how screwed we all are. Or better yet, read Philip Soos’ book Bubble Economics: Australian Land Speculation 1880 – 2013 (http://www.philipsoos.com/) to understand what a pack of fools we are. I figured 5000 words was a good amount to cover just 4 aspects: “Damn, this has gone mainstream”, “Here’s what a bubble looks like”, “Those oldies want us to save them from catastrophic risk”, and lastly “Shit’s about to get real around here, keep your powder dry”.

        I’ll leave the “Buy now or forever miss out” puff pieces to Fairfax and News Ltd. No one expects you to read this whole article, just the bits that resonate with you. Think of your time invested as a down payment on avoiding this bubble. Best financial decision you will ever make. Worth 5000 words. But will definitely try to practice more brevity in future, if only for your sake 🙂

      • Matt Ellis

        June 14, 2015 at 8:22 pm

        P.S. For those with a shorter attention span, there is always the lovely bubble picture at the top 😉

  15. To all of those waiting for ‘the day of reckoning’. If you cash out at the top you win. Ridiculous increase in value over a short period of time then take the money and run. Sell before the crash, then buy again and I’m 10x in front of you guys waiting to say I told you so.

  16. thomasthethinkengine

    June 13, 2015 at 10:34 pm

    I agree with you fundamentally. Good piece.

    But I want to make two points.

    1. the slightly rude commentator above was right about length. Your piece would have been more effective at half the size.

    2. A rising ratio of house price to income is not necessarily unsustainable when the cost of other items is rising slower than wages. I’m not saying it’s not a bubble. It almost certainly is, in important parts of Australia. But we should expect that ratio to rise over the last 30 years.
    See my calculations here: http://thomasthethinkengine.com/2010/04/30/should-house-prices-be-a-consistent-multiple-of-income/

  17. Great article Matt. There are a lot of truths in what you have written and tonnes of supporting evidence. The thing about Sydney and Melbourne is that they’re very attractive places to live hence the extremely hot demand.

    I wanted to share this graph to show the RBA’s point of view of Mr Market: http://www.rba.gov.au/publications/smp/2015/may/graphs/graph-3.3.html

    Disclaimer I don’t work for the Bank and unfortunately the graph only spans 8 years and misses the effect of the mining boom.

    In the left panel you will notice in 2014 the Sydney market showed support with a double low at 11% where as in the right panel the Perth market met resistance at 11%. Brisbane (like Perth, a state largely affected by changes in commodities prices) seems to be following Perth’s lead.

    In the last year we can see Melbourne is starting to correct itself as is Australia more generally.

    When you own and you know there’s other cities like Singapore and New York which are much more expensive its easy to believe we’re not in a bubble. And once you’re in the market, in one of these extremely desirable cities, you’re more likely to prefer to weather out the storm. I hope there aren’t many people or lenders who haven’t factored in > 9% interest rates.

    One thing is for sure in the next 6-18 months we’ll see if there is resistance at 21% for Sydney prices…

  18. Herculean post Matt. Great job.

  19. Excellent information Matt and commentators. A short way of saying all of this might be to remind us that we are being led by psychopaths and fools (evidence on nightly news) and thus we are all at risk.

    How can we have confidence in anything that Tony, Warren, George, Joe and the gang say? They are there because they are manipulable and therefore sinister and greedy interests can leech off the financial and resource flows of the country.

  20. Congratulations Matt. One of the most insightful articles I’ve read on the subject, and definitely the most well written (5,000 words was the perfect length, by the way). I wish I’d read an author with such fire in the belly 10 years ago. I turn 44 this year. I bought a unit in a ‘hot’ suburb (15%+) in November 2007, on the advice of two trusted acquaintances (a real estate valuer and a real estate agent – yes, I still cringe at my naivety, and every now and then, still give myself an uppercut). After eight years, it’s now just come back to the price I initially paid for it. Without wanting to encourage further tsk tsking, I also have to admit that I bought it on zero deposit, with the help of the FHOG. When friends used to ask me why I hadn’t spent another $10k fixing it up, my standard line was that if I changed a light bulb I’d be overcapitalising. They laughed. I didn’t.

    The point is, I’ve lived through exactly what you’re talking about, and to further compound the problem, the economic downturn lead me to being made redundant in early 2009, just four months after Lehmann Bros collapsed. A clusterf_k if there ever was one: no job, no money and $30k underwater within 12 months of achieving the Great Australian Dream. Lining up at the dole office in my suit behind various shirtless, toothless meth-amphetmine addicts to register for unemployment as a prerequisite to getting three months grace on my mortgage repayments. Despite all this, I’m fully aware of how ‘lucky’ I was – lucky that I managed to scrap and scrape some work together, lucky that we didn’t go into recession, lucky that Australia largely ‘escaped’ (due to the buffering effect of the commodities boom) the misfortunes seen and experienced in so many other countries. I was damned lucky to have already won the life lottery of being born in The Lucky Country.

    But you’re right, mate. Our combined luck, our monetary powder (wasted trying to fix a fiscal/structural problem), and our time, are fast running out. And the next generation, and the older FOMOs won’t be near as lucky as I was.

    I was in Ireland in September of last year (a trip I’d encourage our friend ‘Sheesh’ [above] to take), and saw first hand the economic, cultural and spiritual devastation that such a collapse brings about. The people I was staying with had a EUR120,000 mortgage on a small townhouse that is today valued at EUR40,000 – EUR80,000 underwater. The Government-managed jobs program meant they were only allowed to work 20 hours per week each – a job sharing arrangement which meant that no one was on the dole, but at the same time, no one ever has a prospect of getting ahead. They’ll be underwater til the day they die, with zero chance of leaving anything behind for their children but a staggering debt that will take their work lives too, to pay off. This is the real cost, and it will be one that will be paid, and played out, for decades to come.

    In concluding, I’ll say merely that your grasp on the fundamentals and your passion is enough to warm the heart and stir the blood of this (relatively) old Gen X’er. And, I might add, you’re article was sent to me via a friend (my age) from his Dad – so your message is thankfully getting through to open minds of all age groups. One of my favourite laments these days is to wonder aloud why students and other young people with the energy don’t march in the streets anymore – let alone get arrested. I think they might if more of them read your article. As a student in the 90s, my Saturday nights were spent watching Paul Keating light up the lower house on Question Time. Your razor sharp analysis and attacking style remind me of him. Perhaps a career representing your generation, and all generations, awaits?

    I might be a pensioner without a pension by then, but I’ll scrape up the bus fare and head down to the polling booth to vote for someone who knows what they’re talking about.

  21. Matt – great article and thanks for taking the time and effort to make your submission to the House of Reps Home Ownership Inquiry. Mine (#23) looks amateurish in comparison but I wanted to put them on notice and have their negligence on the public record when the cards finally fall.
    Keep up the fight.

  22. Absolutely excellent article.

    Just some examples on how ugly this can (and will) get:

    – An Irish guy at our department bought a house in 2007 for 400K Euro, he can get 120K Euro for it now.
    – A friend of mine just bought a house in California for US$ 100K, that same house was bought by the vendor in 2006 for US$ 500K.

    Here it may even get worse than that. Experts predict a halving of prices, but to go back to fundamentals prices should drop at least 60 to 70 % here…

  23. Fantastic article, well written, Australia is long overdue for a correction rising house prices and mortgages are sucking money from the productive economy and hurt everyone.

  24. “Why are we not lectured on these by the older generations?”

    Here’s the key thing – and I’ll add it here to compliment the excellent analytics of this article’s no-nonsense views – while there were any older generationS, things were kept in check. There isn’t an older generation any longer, boomers are all essentially a bunch of developmentally retarded children believing their own fantasy.

    My view on this is somewhat un-wishy-washy-mainstream – the baby boomer generation did not happen due to postponed births of the war years, but mostly because of fears of post Hiroshima nuclear threat feeling so real (an entire country could be wiped out by a quick disappearance of a large part of the population and likely colossal fertility issues that would ensue – and the panicked order of the day (and of those 1946-64 years) was to ensure population survival at all costs by massive birth rates – undoubtedly sponsored by and requested by governments of the epoch)

    This in itself made boomers permanently incapable of any traditional logic, they were the exception, always special, always first, uber-important – they thought they change the game and have the (moral) right to do so – the children of grand nuclear annihilation fear, apologised to by their parents and forever treated like little flowers of life (later celebrated by the Woodstock, hippies and alike – once acceptance of nuclear mutual assured destruction as official doctrine rendered those fears irrational and unleashed ‘the love’)

    But the damage to human sanity has already been done – a bulge of children their own parents knew they didn’t know what to do with, there to now be handled, educated, housed, and made to feel special to mask the brutality of giving them birth as a live shield in the first place, allowed to be greedy as compensation for their irrelevance and told to somehow just fit in (there was never going to be enough room for them in schooling, housing, corporate or health systems – and graveyards either, though solved by cremation) – they took all they could while an older generation guilty of inventing atomic weapons toiled away to give them whatever they could.

    At around 1998, the US had its first Baby Boomer president – a retard prime who went bombing an allied country to deflect his sex scandals, setting the standard for level of infancy in adults later to be accepted as norm and put on a pedestal of supposed human progress and new, highly developed individuality (though boomers were always, in substance, a herd).

    What followed, and still does, is one global gaffe after another – they are essentially damaged never-to-grow up children with an uncertain memory of an impending (nuclear) doom, completely consumed by their own fears and wants and unaware of the world at large, having grown up with no TV or radio, let alone internet or always on connectivity (otherwise that would probably be monopolised like housing is now, but they are children-scared-of-it)

    As sad a fact as that is, anyone from generation Y (I am an Xer) would be wiser – and you already prove you are smarter – to assume You are the parent and Boomers are the children – they don’t know sense, they lie like little children hiding the jar of jam stolen from the store room while still having it on their face, they will unashamedly twist all and any argument to justify their own endless (nuclear) fear driven greed – and are so far maneuvering everyone else into thinking they will simply have it their way – keeping the reins for as long as belief in this lie demotivates the younger ones into depression rather than an organised and sanity bringing generational coup that is becoming the real elephant in the room (now that Joe and Tony have already been shown for all their crookedness)

    Gravity always pulling down, and sun still coming out every morning, the harsh truth is that unless they give in now and drop property prices massively in exchange for basic care, something I know a number of them need, we will simply let them die helpless and forgotten in hospitals, everyone feeling justified by the very greed they dished out while running the show on their terms. Run this as a message for a while, see how jaws drop together with property prices (and start getting used to soon running the show – they are incapable of fixing anything, their parents did it all for them, the whole lot of today’s supposed governance is smoke and mirrors so boomers can die protected)

    It’s a scary thought, but ask me if I can imagine an underpaid, overworked and studio renting doctor or nurse who is unlikely to be able to afford having children to begin with precisely due to boomers’ unashamed theft of all land actually saving a greedy multimillionaire 2 house owning git just because the boomer thinks he’s special – and I’ll tell you I expect funeral directors to be at profit there very quickly. And their health is rapidly becoming their latest (and last) obsession.

    (I’m old enough to have worked with pre-boomers when I first started – a solid, disciplined, no nonsense and no whining bunch that has lived through the WWII to a part at least, including my grandfather who was in it – but was too young in 1999 to own a property already, and have not thought the numbers added up since 2001 – for all the talk of raising prices awing the innumerate masses, the mathematical impossibility of this continuing forever with no matching salary increases was always clear to me (hey, we can all just add a 0 to end of every price – and then celebrate this massive 10 fold growth that hasn’t happened – I’m just not dumb enough, or boomer-special-deluded-enough, to believe that drivel))

  25. I lived through the Houston Texas real estate crash of the mid 1980s. Prices were no way near speculated up as much in Australia and they still fell to around 4 cents on the dollar (lost 96 percent of their value). Here we see some of the same builders (and floor plans), same media promoters, and the same banksters. The Australian crash is going to be breathtaking.

    If it follows the pattern the volume of sales will slow down and then drop to near zero as the banks restrict, and then later stop, lending. A few months later the banks themselves fail. After about six months when real estate sales restart it will be mostly at bankruptcy auctions and almost entirely for cash (as all the banks within the state/country will have failed).

    In the case of Australia, you are right, the real-estate bubble has completely sucked the life out of the real economy. As but one example, my company which used to occupy five factory units and employ 150 or so Australians now has relocated the bulk of its operations to Romania (where real-estate, food, clean water, power, and high speed Internet are cheap).

  26. A very disturbing article in a recent herald sun argued for continued encouragement of housing investment by the vast Chinese middle class desperate to take their children and grandchildren away from pollution in China – Melbourne is desirable to them for that reason. Fair enough, but blind Freddy can see they will be required in ever increasing numbers to stave off the collapse of the bubble – and at some point in this process Melbourne will have become a Chinese city. Call me a racist but that isn’t good for the Australian people. At some point the Chinese will outvote native Australians who will then cease to run their own country. Take the medicine, let the bubble collapse, things only get worse the longer this goes on.

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