If the economy keeps doing well, wouldn't salaries increase?
Couldn't the government invest more in less populated areas around the capital cities so that living in those areas becomes more feasible?
Why have a recession?
Sure in some niche jobs (mining sector etc.) there are positions paying massive money ($100K+) to young kids just out of school or an apprenticeship, but overall, in the government sector and small business, the disparity is widening at an alarming rate.
I honestly have no idea how young couples starting out today even are able to afford a small two bedroom unit without BOTH of them being in high paying jobs. I think we will surely see population growth slowing as there is pretty much no way young couples can have a baby and have one parent off work for up to a year to care for the baby, AND own/rent a house/apartment.
Our city is seeing a massive exodus of people, heading south for cheaper pastures - so much so that they (our state government) are holding crisis community meetings to try and ascertain how they can get people to stay. We are talking people who have been here for generations too, not just your average 'fly in fly out' workers.
Some out of the ordinary life circumstances arose, and I ended up moving to Launceston in Tasmania. I was able to buy a house in an area I wanted to live in here for $215,000. I can't fathom taking on twice that on, even on dual incomes, that sort of loan would make me feel ill.
My job is in metal fabrication, the past 12 months have been much slower than the previous 10 years, things have slowed down a great deal.
(Yes, it's completely insane, and even more insane is that nobody else seems to find it insane...)
$215,000 wouldn't even buy you a 1 bedroom squat here. I could probably sell my place and buy a BIG place in Launceston, but like I said, if it ever came that we had to move back here to care for elders, it won't be possible at all.
But I guess that's the case everywhere in Australia. The places where a young person wants to live (young / without children) is not somewhere which they can afford.
It's entering a bust now because Inpex is wrapping up. I expect unit prices will fall sharply, now that there's a glut.
I was there a few weeks ago for the first time in several years and was basically amazed by how many new apartment buildings had been stamped out.
We visit the local markets frequently, and almost all the stall holders (some who have been at the markets for 2 or more decades) are struggling. All the local hotels and services apartments are occupied by fly in fly out workers, taking rooms that tourists normally buy in the dry season, and they don't visit markets or spend coin locally. Inpex was touted as a boon for the Northern Territory, but it has been a total bust for us. I really love Darwin, but I fear it will be a ghost town in a few years.
Did you walk down the mall in the CBD when you were here? Notice how many empty shops and 'For Lease' signs were up all over the place?
We used to have a solid public service contingent in this town, which sort of kept things going through the lean times, but even that is under threat. Our newly elected Territory government is looking to axe 100+ jobs over this year via natural attrition. We've already sold off most of our high value assets (the port and our TIO insurance company etc.), and the Federal government have just announced they are slashing $2billion from our GST revenue share over the next few years. There is not much left in the kitty.
The above is basically a stylised description of what has actually been happening in Australia over the past two decades: real estate loans have been crowding out business loans: http://i.imgur.com/g7a9QDL.png . The upper bound for sophisticated public discussion on economic policy is, IMHO, when pollies yammer on about 'productivity' (a depressingly low 'upper bound', and not without its own issues). If we are truly serious about lifting multi-factor productivity, then we should not be distorting capital investment decisions with crazy-expensive tax breaks for property investors.
It would be great if we could correct this problem, without serious macroeconomic upheaval, by gradually phasing in tax reforms. But that opportunity passed us by about a decade ago. The reforms still have to occur, mind you. It's just that now we pretty much have to eat a massive property bust (and possible crisis in the financial sector) first.
As for the reforms, my top 3 would be:
- Change capital gains back to indexation by inflation (rather than a flat 50% discount after 1 year of ownership).
- Get the States to slowly repeal stamp duty on property and insurance, and slowly introduce a tax on the unimproved value of land (say, over a 5 year timeframe).
- Simplify and repeal a whole bunch of zoning and land planning laws and regulations, at both the State and local council level.
Most people haven't seen the benefits of economic growth, so they don't really care if we have a recession, it's mostly going to hit the wealthy investing in housing. A housing market crash will be the biggest redistribution of wealth the countries ever seen.
I'm suggesting that new business centres be created so that people can live in cheaper areas, and still be close to their jobs. This should reduce traffic since fewer people will need to commute.
But I am not a City Planner. I have no idea what is feasible or not. But there must be lots of industries that don't need to be in the CDB.
Is the problem lack of political will to fix this sort of error (capitalism beating socialism)? Or maybe that solutions are applied but are ineffective?
> Negative gearing.
> 1st house exempt from pension assessment. ie, 2 billion dollar house, but can collect pension. Have 100k(?) cash in bank? No pension.
> First home buyer grant. Originally intended to encourage more housing, instead is used to buy existing properties.
Proposed policies in parliament:
> Using super for houses. Yes, people could put their retirement savings in a house in a market that could collapse and lose a lot of money.
Even with the FHOG scheme, I'm fairly sure the government was advised at the time that it was a stupid idea, but they went ahead with it anyway. The reasons why this 'super for deposits' idea has recently been floated are:
a) Someone at Coalition HQ finally figured out how to read demographic statistics (god help us) and realised that Gen Y (18-34) are now the largest voting block in the country (for our American friends: Australia has compulsory voting). Incidentally, I think this is the reason behind the 'surprisingly' close election last time around (Bowen's negative gearing policies addressed some of Gen Y's concerns around home ownership).
b) They also figured out that housing affordability is a serious issue for Gen Y. You might have noticed how everyone is all of a sudden so very concerned about housing affordability.
c) Both sides of politics are terrified of the bubble popping on their watch. They're acutely aware that voters confuse correlation and causation when it comes to economic policy (see: Howard & Costello's budget surpluses) and don't want to be forever branded as 'those guys that ruined the Australian economy'. So they'll do anything to kick the can down the road.
So (a) + (b) means they want to be seen to be doing something to improve housing affordability. However, this presents a problem: something becomes more affordable when that something becomes cheaper (i.e. prices go down). Unfortunately, doing anything that lowers house prices pisses off the second largest voting demographic in the country: the baby-boomers (53-71).
Combine (c) with the above and the solution becomes obvious: a policy that makes Gen Y feel as though they're in a better position to buy a house, that also pushes prices up (due to increased demand in a market with fixed short-run supply). This has the nice bonus effect of kicking the can just that little bit further down the road. And really, who cares about the distant future?
Although, I'd bet they aren't factoring in how ratings agencies might perceive such a policy. Australia is already on 'credit watch'. This kind of policy could very well be the final straw, resulting in a credit rating downgrade for the Commonwealth. And because the Commonwealth underwrites almost all retail bank deposits (explicitly), a Commonwealth downgrade is almost equivalent to the banks being downgraded.
Were this to happen, overseas lenders would increase their rates on wholesale funding that they lend to our banks (roughly 50% of the banks' cash). In turn, our banks will be forced to raise variable rates on retail housing loans, ironically triggering the bubble pop that the government was trying to avoid in the first place.
In short, it's just awful policy whichever way you look at it. However, I wouldn't want to bet against it happening anyway; this government seems to have an awfully large supply of stupid.
At least they restricted the first homebuyer grant to new properties, so there's that.
It's the boomers a recession will hurt. People on minimum wage actually do shit for a living.
The banking system is not using excess capital to create or generate business. Instead it is being poured into land speculation. Dumb money.
If the value of my property plummeted too far and I was stuck with a massive mortgage, the first thing I would do is stop any discretionary spending until I could figure out what the future looked like.
Imagine that happened to a lot of the middle class.
I agree that prices are too high, but I can't see anything good coming from a crash.
Depends on your perspective. For many (possibly most) people, lower house prices are good.
Among households headed by Australians aged under 35 an extraordinary 63.4 per cent rent.[http://www.smh.com.au/federal-politics/political-opinion/no-...]