I am going to weigh into the Australian property debate. The issue was sparked by an academic Steven Keen, who was unsurprisingly proven wrong with assertions of a dire collapse in Australian property prices. Its just not going to happen. Now there is a guy from Morgan Stanley saying there will be a slow decline in Australian property prices. I care to differ. The reasons are the following:
1. Interest rates in Australia will not rise, the Australia dollar will go up. Is that a concern? No, because I think commodity prices will be buoyant, and the govt would prefer commodity producers to suffer rather than homeowners.
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| Sydney, CBD, 2009 |
3. There will be a raft of Chinese and Indian investment in these projects over the next 2-3 decades, and that will free up Australian equity to fund all manner of investments and consumption, not to mention tax receipts.
4. There is still strong (i.e. bent up) demand for first homes and home upgrades, and that will continue
5. Neither government is going to allow land releases to severely undermine urban land prices. I see utterly no discussion on land zoning.
6. Mineral exports will increase over this period because of strong demand from China and India. China is not going to stop spending. It is finding even more reasons to invest. It now has to produce a lot of its own iron ore because Australia, Brazil and India are playing hard ball. So they will need new steel mills, new power stations, new railways, etc.
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| Mosman - Lower North Shore, Sydney, NSW |
We are in the midst of an economic era which will never be seen again. There is really no historical precedent for the period we are currently passing through, and it will not be repeated again on this scale. You have half the world's population undergoing liberalisation, at a time when population growth rates can only fall, so the stimulus is never going to be greater from population growth. Even if governments ceased to be centrally controlled, and reason was the standard of value, it is doubtful that the current wealth production would be achieved because of the reliance on consumption by politicians (i.e. Because they undermine productivity through their very existence).
For this reason, I don't see a collapse in Australian property prices, or even a slow leak. I see a government which will be looking to achieve a sideways movement in property prices in order to allow household debt levels to come down. If they spark a property bubble by preventing interest rate increases, they will leave voters with no one to blame in an uncertain international climate. They will be able to do this because employment, immigration and capital inflows will sustain economic activity and per capita incomes.
There are however some caveats to this:
1. If the Liberals win government, they plan to cut immigration so this can be expected to reduce demand for property. I don't think this will have too much difference.
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