The looming Coalition landside win on Saturday is now virtually certain to trigger a series of housing booms in Australia. In some areas the boom is not waiting for September 7.
The money markets are expecting another two rate reductions in the coming year. I no longer think that is likely. Indeed the chaos in Canberra appears to have thwarted the Reserve Bank’s attempts to stimulate the economy via interest rate reductions. Not realising what was happening, Reserve Bank Governor Glenn Stevens may have gone too far.
You will remember last month I alerted Australia to the likelihood of a post-election boom in housing caused by the unprecedented low interest rates coinciding with a change of government (Beware the mother of all housing booms August 13).
At the time a lot of people scoffed at the idea. But at the weekend I was in the company of one our larger outer-suburban homebuilders with operations in Brisbane, Sydney and Melbourne. In the last few weeks they have seen a level of inquiry rarely matched in their history. But unusually, the levels of inquiry did not see the normal level of agreements signed, even though the buyers were clearly ready to go. They just wanted to make sure that the current government really is going to be convincingly removed on September 7. The builder is then expecting an unprecedented avalanche of orders.
And over the weekend there were plenty of anecdotal signs that the uncorking of the residential building industry in Australia is happening. There was active demand for outer-suburban land in Sydney and Melbourne at the weekend and the demand for inner-suburban dwellings continues to be very strong. There is keen competition between buyers at auctions.
In Melbourne there is a large supply of apartments but in Sydney the supply is much more restricted. Sydney’s largest apartment owner and developer, Harry Triguboff, is frightened of a price explosion and is selling some of his investment apartments onto the market. He is stepping up the purchase of apartment land (Putting a lid on property exuberance, August 21).
Once the current stock is exhausted, the price rises could accelerate in some areas because the banks are squeezing the supply of dwellings by making it hard for developers to get finance. This combines with myriad regulations and planning bodies to further restrict the supply. At the same time, the banks are generous in their lending to consumers so are fanning demand for the restricted supply. Given the level of interest rates, this is very dangerous.
Right now, all around Australia, home builders are struggling. My advice to them is to hang in there, because better times are just around the corner.
But many will be caught with low-price fixed tenders that were made to keep their operations going. The demand surge will lift prices and make those fixed price contracts high risk.
Those buying apartments off the plan may find that the developers cannot build at the prices which have been offered.
It is rare in Australia for a looming election outcome to trigger so much activity in one industry. It will spread later into other areas.
we live in very interesting times. Not many of us thought there were multiple angles for another property boom in Australia. It's little wonder Steve Keen has changed his tune. To officially coin a classic APF term if i may: 'it is what it is.'
Abbotts gonna win...some are gonna pay plenty.......
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.
Oh Great! My wife and I have spent the last 3 years trying to save up enough deposit so that we can buy our first home together and now it looks like they will just keep getting further and further out of reach. Fantastic news for you lot that already own places, unfortunately the rest of us just keep getting screwed over.
Yes the loons on the business side will be back screaming for lower interest rates to boost RE and consumption.
Can you imagine the spit Hardly Normal is going to have in a year or two? The Govt will have to ‘do something’ Bill Evans, along with a whole raft of current and ex-bankers, will be out every week calling for interest rate cuts as the solution to all things!
We’ll have continuous calls for ‘infrastructure’ to build our cities, new urban rail links, new freeways, to link even more housing development and grand shopping malls…the symbol of our prosperity. We’ll get5 them along with more foreign debt to finance that goes with it all.
We’ll have demands for more money for education to reinforce the broken model we already have. ‘Gonski’ will be quoted day in day out…what for?
And so it will all go on funded by sales of natural resource assets to foreigners. Nothing will change other than to accelerate towards the day of reckoning in whatever damned form that is going to take.
The lunatic element that totally dominates the Trade Union movement and all it’s branches including WHS are going to have another field day. Their’ Hard Won Rights’ are going to be eroded and it cannot happen! “Your Rights at Work” will dominate the landscape. “How much is a human life worth?” will be a constant mantra. The powerful like the Watersiders will be out there, as the vanguard, defending ‘worker’s rights’ by demanding more money and less work at the expense of their fellow workers. We will have tens of millions, possibly hundreds of millions, of member’s money spent on a concerted TV advertising campaign of ‘Worker’s Rights’ The old automatic winner ‘working families of Australia ‘ will be back big time!
The lawyers, accountants, etc will be compensating themselves for inflation…and then some. I mean really as the currency falls the Benz’s and BMW’s are going to get really expensive!
Appeals for co-operation in the interests of the community will be wasted.
Further there is the implication that to cut the Whitlam induced massive duplication and waste in the PS is wrong. The powerful PS Unions will become also be out there as the vanguard of workers rights demanding more money and better conditions. There will be nothing that will be too much! The current inanity will be exaggerated.
Tony Abbott will cut budgets (or at least appear to cut budgets). AND he will (effectively) increase public investment.
How will he perform this magic trick?
He will dress up “public” spending as “private” spending by using public-private “partnerships”, tax-farming deals, and the sale of whatever monopolies are left over after the Howard/Costello era.
The risks will still be borne by the public through take-or-pay contracts, or guarantees, or selective subsidies to raise rates of return to the levels required by the private financiers.
And the rates of return required by private financiers will be reduced by introducing a new private-sector version of the old “20/30 Rule” which will require complying superannuation funds to invest a minimum proportion of their funds in qualifying private infrastructure investments.
New taxes (such as new road tolls) will be imposed but will not be applied until projects are completed, which will be after the next election. Thus, it will be possible to borrow – and spend – against new taxes without the taxes actually having been implemented.
All of this will be a hugely wasteful way of financing public works. It will misallocate risks (like traffic risk). It use illiquid and expensive financing instruments (like project finance) when liquid government bonds would be cheaper, even after adjusting for risk transfer. It will involve vast arrangement fees and other fees. It will entrench monopolists who will gouge the taxpayer for generations to come. It will replace transparent price-based contracting with opaque build-finance-operate packages.
But it will also line the pockets of the people who matter: the finance industry (mainly in Sydney), their support industries, and the major (but not minor) contractors.
Like any form of industry protection, it will be allocatively inefficient and it will permanently and unnecessarily raise both the cost of living and the cost of doing business in Australia.
But those rent-seekers who are benefiting from it will hail it as a marvel of private sector prosperity.
There is nothing that can be done to prevent this. Under the system of “franchised monopoly government” – which adversely selects the most megalomaniacal political agents – it is all but inevitable.
Most analysts are tipping a clear win in the federal election will bolster the economy and reignite consumer confidence. But with the poll just days away, that prediction may be little more than wishful thinking.
Research from Goldman Sachs has dampened hopes of a post-election fillip on equity markets, saying that historically there is little evidence to support that theory.
Goldman strategist Tim Toohey said changes of government in the past had actually had the opposite effect, resulting in a period of slower, rather than accelerated, economic activity.
''The assumption that elections lower confidence and delay spending in the lead-up to the poll date is not supported by the economic data,'' Mr Toohey said.
''[And] we find little evidence to suggest that the passing of a federal election results in a surge in retail spending, confidence and asset prices.
''Typically, the $A declines, equity markets decline, bond yields rise, and the path of economic indicators is mixed in the months following the result.''
Mr Toohey said in the past three elections in which there was a change in government, the equity market sold off 1.2 per cent a month before the poll, was 0.2 per cent in the week afterwards, down 0.9 per cent in the fortnight, and a month later was down 2 per cent.
In the case of the Australian dollar, Mr Toohey said a change of government had historically resulted in a 2.6 per cent fall in the week after the election and held onto those losses for the first month of the new regime.
Bond yields, meanwhile, have risen on average 4.2 per cent in the month afterwards.
Mr Toohey said it was possible there would be a lift in some measures of confidence but it would be mild.
He said it was unlikely that business conditions would recover without a broad-based recovery in consumer spending, adding that ''slowing household income growth suggests a cautious consumer will persist. Recent easing in financial conditions and the rise of household wealth through 2012-13 will help, but the lags from both forces are long and in the interim they will have to navigate further fiscal drag.''
But despite Mr Toohey's conclusion based on hard evidence, talk of happy days on the ASX after the poll is still swirling.
RBS Morgans chief economist Michael Knox said in a client note that regardless of who won the election, a clear result would boost the sharemarket.
TestosterTone is single handedly going to give us an economic bounce starting late Saturday.
That will be fiscally buttressed by a government sector which is currently the only sector actually contributing to GDP growth paring back except for long term commitments to middle class welfare and real estate support.
That is going to be transmitted through monetary policy which neither brings the AUD down, or heads off a property bubble, or does anything to make Australian globally exposed sectors competitive.
The Australian economy in the face of all this will not shed jobs, in fact TestosterTone has indicated that 2 million jobs are in the pipeline.
Some clowns out there are worrying about debt. Hell we have about the lowest government debt levels in the OECD, and private levels dont count, but we should be looking to fire them right up from a starting base of circa 150% of disposable income.
Bring on Joe and Malcolm and the rest of Ruperts anointed team. Let them have their term in the sun. Recession will be warded off with the sacrificial toasting of that utter psychopath KRudd and that utter woman Gullard.
Its all good, You’re good, I’m good, It’s so fucking good all those people down the empty shopping centres near where I live need a right chewing out.
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