Spare a thought for property writers in Australia; it has become increasingly obvious that the pressure of having little to write about is taking its toll.
The cash rate together with the inner workings of Australia’s Reserve Bank (RBA) has always remained a fascination for many, although with the next rate rise possibly not until sometime in 2016 – a new search for a property headline has begun in earnest.
Enter the rise and rise of the ‘property bubble’ – although I am quite sure in my 30 years of working in the real estate industry, I am mystified. I have never seen a ‘property bubble’, although I have seen plenty of booms. When a bubble bursts it simply disappears so what can we then expect with a ‘property bubble’? The simple truth when I advance this line of questioning is "well you know what I mean". Well, sorry I don’t, because there is no such thing as a ‘property bubble’ and if you knew anything about the intricacies of property machinations you wouldn’t be writing that in the first place.
We need to go back to find where this recent illusion otherwise known as a ‘property bubble’ emerged from. It has made cameo appearances for over a decade now in Australia despite never bursting. Australia’s mortgage market currently sits at around the $1.3 trillion mark with the Big Four banks holding approximately 80% of the book value. The Murray financial system inquiry has created plenty of argy bargy between the RBA, the Australian Bankers’ Association and the smaller lending institutions as to exactly what is the best practice that Australia needs to adopt – the final recommendations will be delivered to the federal government in November this year.
We can’t ignore Lindsay David’s thought ‘bubbles’ either, who recently penned a book Australia: Boom to Bust, where he warns that Australia has three shaky pillars which he believes are all in a state of collapse – real estate, resources and our banks.
No housing bubble, is the big bank economists’ conclusion which is exactly where I sit given collectively when you have 80% market share their internal data would provide them with the most accurate positioning – over those who are simply speculating.
To further this train of thought I looked at Roy Morgan Research who are constantly drilling down and probing the Australian property markets.
"In July the satisfaction level of the personal customers of the banks remained close to the record high of 82.2% set in June, falling only marginally to 82.1%."
If the borrowers were having problems with their lenders the approval ratings would be plummeting not increasing. Although we need to put this into greater perspective – given there are too many property commentators distorting the truth – their anger and resentment is at an unprecedented level.
Back to Roy Morgan Research – “Over the last four years the number of investment loans in Australia has grown by 37% compared to an increase of only 4% in the number of owner occupier loans. In 2010, just under a million (954,000) Australians [aged] 18 plus had an investment property loan compared to 1.31 million as at March 2014. This growth represents an increase of 37%. Over the same period the number of Australians with an owner – occupied home loan increased from 4.66 million to 4.83 million, an increase of only 4%.”
Based on this information the ‘property bubble’ must be our Baby Boomers running amok by boosting their self-managed superannuation funds care of a very generous federal government who encourage investment in Australian properties by offering substantial tax relief via negative gearing. Then of course we must not forget that old chestnut that Australian property holdings can be approximately divided into thirds – one third rent, the next third own with a mortgage and the final third own without a mortgage.
As recent sales have clearly proven there is no shortage of people wanting to invest in Australian real estate – both local and overseas. So then apply the 'KISS theory' (keep it simple stupid) – when you see an oversupply of properties on the market then market conditions are moving from a vendor to a buyers’ market.
Stuff me, talk about denial and delusion. I suppose he thinks the property in Ireland etc was not in a bubble either.
Nope a stupid vested interest who is using bank satisfaction data...lol what a tosser...
"Robert Simeon is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. He has also been writing real estate blog Virtual Realty News since 2000."
What an idiot. With over 80 percent of market share the big banks have a vested interest in denying the possibility of a property bubble. More smoke and mirrors from propertyspruiker.
There seems to be a problem with the chart too, it doesn't make sense.
ANZ chairman David Gonski says a correction in the housing market is inevitable amid growing concerns that soaring house price growth in the capital cities risks further inflating a property bubble in Australia.
Let me assure you that this isn't one of those shady pyramid schemes that you've been hearing about. No sir, our model is the Trapezoid which guarantees each investor an 800% return within hours. Those who can, do. Those who can't, teach. "It's an itchy blanket, it's designed to remind you how lucky you are"
Thinking a correction may be due and calling a "bubble" are not the same thing. The Oz proerty market regularly experiences corrections - in fact we just had one in 2011/12 (which you may have missed?) which saw nominal prices drop by between 5% and 15% in every city, and in some areas (like the Gold Coast) prices fell 20-30% or more in many places.
Groupthink is a psychological phenomenon that occurs within a group of people, in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome. Group members try to minimize conflict and reach a consensus decision without critical evaluation of alternative viewpoints, by actively suppressing dissenting viewpoints, and by isolating themselves from outside influences.
Does anyone not recognise the Australian political economy here? Look at the Reserve Bank of Australia, the Treasury, the Government and the press, on most issues they are caught in some weird echo chamber where bogus ideas and frames of reference bounce up and down in a vacuum of ersatz gravity.
A few examples make the case. For the past decade, China was thought by “the group” to be going to grow at astonishing rates forever. Warnings to the contrary by people such as Michael Pettis and Jim Chanos were actively attacked and discarded. When the restructuring of the economy that was embraced by “the group” proved based on a false assumption, no accountability transpired, a new set of unchangeable truths emerged in the promotion of a great housing inflation.
Now, as that bubble matures, only a hand full of marginalised economists and analysts keep the light of reason burning as the same members of “groupthink” promote a new disaster to cover the tracks of the old.
I could go on but there is no need. The groupthink loop between the RBA, Treasury, Government and media is obvious. What’s more interesting is to discuss why this socialogical phenomenon has come to pass.
Australia is always prone to groupthink. We exist in a sub-altern national psychology that is most comfortable in a state of colonisation. That’s the simple fruits of history. We are colonial people, born of underclasses, and driven by an inheritance of material philosophy hostile to that which cannot be seen touched, kicked or punched in the face. It has an upside in its defence of equality but is an identity innately suspicious of ideas and oriented towards simplicity. It is very fertile ground for populism.
In recent decades, this defensiveness has morphed with spectacular good fortune to produce a national boom seemingly without end. The two and half decades without recession (which is not real) has bred into us a powerful sense of manifest destiny. It was not good fortune, it was earned, according to ourselves. The corollary is that we are smart, our leaders indomitable, their ideas unshakable, our institutions world class.
If the boom has generated its own groupthink, within it there are more specific reasons as well. An economy reliant upon house price inflation for 75% of its growth relies overly upon confidence to function. That’s why the high-priests of confidence spend all day, every day talking up the market. Sense and prudence are the enemy of the model and must be ruthlessly sought out, attacked and destroyed, one way or another. Within the groupthink boom, the housing bubble feeds eternally upon its own groupthink.
The final reason for the rise of groupthink is, ironically enough, the contemporary grasping culture of the individual that has taken over the ethos of the commons. One might think the rise of individualism would generate the reverse outcome but no. In both the public and private sectors, what were cultures of contribution in the past have been largely supplanted by cultures of selfishness and that demands adherence to a narrow range of ideas that is self-perpetuating.
This is Australia’s age of the plutocrat in which a clique of uber-rich is a critical cog in the machine of change, as well as policy-makers that are bamboozled by their reductive reasoning. I don’t recall a time when Australian corporations could so successfully derail public policy initiatives that will benefit the collective but not their businesses.
On the public side, service used to be driven by an ethos of the common good. Many smart people contributed not for high salaries but because it was a noble endeavour to improve one’s nation. That sentiment is slipping inexorably away, and it starts at the top. Take for example monetary policy where the captain of the ship, Glenn Stevens, currently enjoys a million dollar salary. For what one might ask? Is he so much better at his job than those that came before him? Is he a keenly sought after million dollar private economist? No, he is a career RBA man and his salary does not reflect any market value so much as it does the decline of the values of public service.
More to the point, it works in reverse as well. Many young RBA and Treasury economists these days are simply jumping through the public hoop before taking their training and expertise private for the big bucks. This is not new by any means but the driving ambitions are. It is obviously destructive to the values of independent thought that these “experts” are picked off by businesses with the objective often of undermining the very institution that they are coming from.
These two sets of plutocrats do deals, explicitly and implicitly. They own the media too so those deals are perpetually spun into a narrative of national interest that again covers their tracks.
So, historical, structural and institutionalised groupthink: the very heart of our economic model.
One of David's better essays recently. But I'm not sure that Glenn's million-dollar salary has a lot to do with "groupthink". It's simply a matter of the RBA board being stacked with private-sector suits who inevitably tried to run it like a business and thus offered Stevens a private-sector salary. Glenn, being convinced of his own brilliance in dodging the GFC, accepted this big pay rise because he thought he'd done something truly miraculous when we avoided recession. If he had to receive something, a bonus payment might have been more appropriate than a permanent salary increase.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
Has there truly been a hot shot economist that can accurately describe what is a property bubble?
Seem to be some fascination on the b word of "bull,bear & bubble.
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$ It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do. Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
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