Economists claim Australia in midst of largest housing bubble on record
31 minutes ago June 22, 2015 7:46PM
Two leading economists claim Australia is in the midst of the largest housing bubble or record and that when it bursts it will trigger a US and Irish-style collapse. Source: Supplied AUSTRALIA is in the midst of the “largest housing bubble on record” and when it bursts it will be a “bloodbath”.
This is the assessment of two housing economists who claim Australia is on track for a US and Irish-style collapse because of an oversupply of housing in the country.
In a frank and scathing submission to the upcoming parliamentary inquiry into home ownership which will begin this Friday, Lindsay David and Philip Soos criticise politicians and the housing industry for perpetuating the myth of housing shortages in major capital cities.
They claim there is actually an oversupply of housing, especially in Victoria.
Earlier this month, Treasurer Joe Hockey sparked debate when he denied the existence of a housing bubble, then told those struggling with housing affordability in Sydney to “get a good job that pays good money”.
Mr David and Mr Soos of LF Economics, which made the submission, also take aim at the banking sector and our taxation system, which they say has added to the problem.
They predict the “epicentre” of the collapse will take place in Melbourne where, they say, rents have not increased substantially for the past five years.
They also claim the failure of house prices to increase substantially in WA in recent years will trigger a similar collapse in Perth.
“Melbourne is primed to become the epicentre of a legendary housing market crash due to the combination of a staggering boom in real housing prices (178 per cent),” the submission says. “Perth is also in a serious predicament following price stagnation and substantial net income losses since the market peaked in (the first quarter of 2007). On average, investors purchasing after the peak have lost in terms of both prices and rental income.
“Other capital cities will experience a downturn, though not as large in percentage terms as Melbourne or Perth.”
Economists Lindsay David and Philip Soos claim Melbourne will be the “epicentre” of Australia’s housing market “bloodbath”. Source: Getty Images
Mr David and Mr Soos believe the bubble is worse than the bubbles of the 1880s, 1920s, mid-1970s and late 1980s and while they can’t pinpoint what will cause a collapse they are certain it will happen.
“These metrics point to the beginning of the housing boom in 1996 and peaking in 2010, though the latest booms in Sydney and Melbourne could result in posting new peaks in terms of the(price-to-rent) ratio,” they wrote.
“Housing prices across all capital cities remain grossly inflated relative to rents, income, inflation and GDP. What event or set of events triggers the beginning of the end of the housing bubble is not yet known.
“A bloodbath in the housing market, however, appears a near certainty due to the magnitude of falls required for housing prices to again reflect economic fundamentals. The largest residential land market bubble on record is truly incomparable and dwarfs earlier speculative episodes in the commercial and industrial land market.”
Mr David and Mr Soos also say they don’t believe there should be a federal inquiry. They said successive governments had failed to implement any recommendations from previous inquiries and that Australia would be better served by examining ways to reduce the influence of unscrupulous lenders and the rich.
“Property ownership and speculation has been elevated to the status of religion in Australia, compounded by a perverse culture of homeowner entitlement driven by a degenerate taxation system that penalises work and effort while rewarding unearned wealth and income,” they wrote. “This latest housing inquiry is a transparent political ploy to avert implementing a raft of
genuine policies that would impinge upon the government-supported ability of the FIRE (finance, insurance and real estate) sector to siphon record-breaking profits from the economy and labour through the extraction of economic rents, primarily usury and land rent,” they wrote.
“The Australian public would be far better served if an alternate inquiry were to be held that
investigated ways to democratise the clearly malfunctioning political system, which regressively only assists Australia’s army of private monopolists, usurers, speculators, rent seekers, free riders, financial robber barons, control frauds, inheritors and indolent rich.
“It is high time the nation’s politicians, political parties, public executives, top-level public
economists, regulators and bureaucrats have their power over policymaking significantly
restricted by and for the benefit of the public and common good.
“It is this self-interest that has helped to perpetuate the largest debt-financed real estate bubble in Australia’s history.”
The duo also claim Australia is now the third most indebted country in the world, relative to GDP, after having passed the Netherlands in 2014.
Denmark is first, while Switzerland is second.
“Given the current boom in Sydney and Melbourne, it is possible Australia will soon exceed Switzerland to become second, and with enough time, perhaps first,” they wrote.
The federal government’s home ownership inquiry begins in Canberra on Friday.
