this damage should be obvious to all! unfortunately we have amongst ourselves those that don't care...it is as if they have somewhere to go after they ruin it for everyone in Oz.
after the crash we will be listening to them confess to sleepless nights while trying to preserve 'this or that' however we will never hear them surrendering their wages, commisions or bonuses they collected while ruining this place for everyone!
...........................................................Today's Financial Review reports, ?Loans for the purchase of new homes have virtually collapsed as first home buyers desert the market under pressure from higher interest rates.'
?Finance for new dwellings plummeted 12 per cent in February to be down almost 36 per cent from three months earlier'
We're not going to put the boot into housing today?that's the role of our mate Kris Sayce over at Money Morning. He's currently stomping all over the flagging housing body and doing a pretty good job.
No, we want to talk about the damage housing is doing to the Australian economy?the detrimental effect of constant government interference and how this obsession with housing and house prices will lower all of our living standards.
Right then.
It should be pretty clear to anyone that first-home buyers are deserting the market because a) housing is too expensive and b) the government's ?first-home owners' boost' (or more aptly, the ?recent home-sellers benefit') is no longer. And therefore, b has reinforced a.
Now, saying that housing to ?too expensive' is a pretty general statement open to conjecture. Fair enough.
If you want some proof though, have a read of Steve Keen's latest article on the housing market. He shows that the average first homeowners mortgage has increased from $72,000 in 1992 to $274,000 in 2011.
That's a hefty increase. Housing bulls would counter that interest rates are much lower now and incomes much higher, so the structural change in house prices is sustainable. That's the line peddled by most mainstream economists who work for the banks that have a vested interest in keeping house prices high.
Keen shoots that argument down by showing average loan repayments have increased by 2.8 times since 1992, while the average wage has slightly less than doubled.
Says Keen - ?While wages have risen, the 2.8 times increase in loan repayments means that mortgage payments on an average first home loan have gone from taking 40 percent of after-tax income of the average worker in the 1990s to 64 percent now.'
That sounds like a reasonable definition of ?too expensive for us'.
But how is this impacting the broader economy?
Well, firstly, if more and more of your income goes towards servicing and paying off a home loan then you have less income to save or spend elsewhere. Housing is an unproductive investment.
Sure, it provides shelter and security so you can go about your business doing other productive things. But beyond that, it provides no lasting benefits for society.
It shouldn't come as a surprise then to see Australia's productivity growth slipping badly. The World Trade Organisation recently released a report that, among other things, raised concerns about Australia's flagging productivity growth. The report stated that productivity growth had fallen from its long-term average of 1.3 per cent to minus 0.2 per cent.
Productivity is the holy grail of economics. It's the main factor that leads to a sustainable increase in living standards. We would suggest that over the past decade or two, living standards have in part been boosted by the plentiful availability of credit.
Productivity, as the name suggests, refers to the production of goods or services for a given amount of labour and capital. Growing productivity means a nation produces more for the same cost. It's like increasing a country's profit margin.
In recent years, Australia's profit margins have been squeezed. And our contention is that much of this squeeze is due to overinvestment in housing, which is unproductive....................article continues..........
