Yesterday, this column considered the views of Australian gold critics Rory Robertson, Michael Pascoe and David Bassanese, who warned of a growing gold “bubble”. Their views appear largely based on the fact that (1) the price of gold has increased substantially in recent years; and (2) unlike productive assets, gold doesn’t produce a yield or income for investors.

While those views are defensible (especially in the short term), it is strange that Robertson appears to retain a neutral view on housing (claiming in April that he had no strong view on the outlook for housing) while being so pessimistic about gold. Especially since land and gold share a key similarity — both are a hedge against inflation (residential property has historically increased in Australia at slightly more than the general rate of price growth) and neither produce anything of real value to an economy (property can provide a yield to investors though).

Robertson recently wrote a self-congratulatory article for Business Spectator, trumpeting his own foresight in defeating Steve Keen in a bet on housing prices, claiming:

The “bubble crew” seem to keep missing the simple but profound fact that there’s been extraordinarily rapid growth in the number of actual people in Australia with incomes and/or wealth who want to own or rent houses in which to live — as opposed to living in tents and shipping containers — and yet the underlying long-term trend in home-building remains flat near 150,000 per annum. The sheer strength of demand via rapid population growth — alongside very low mortgage rates – has been an obvious upward pressure on home prices.

For Robertson, who appears to consider his own intellect somewhere between Freud and Keynes, one would think he can come up with a better argument for burgeoning property prices than the “population increase” line trotted out by every local suburban real estate agent. Robertson also conveniently ignored the virtual doubling in the ratio of house prices to disposable incomes while giving short shrift to the substantial increase in mortgage levels to GDP, which has risen from 20% in 1990 to almost 90% now.

While Australian population levels have risen recently (and the GFC caused residential dwelling construction to rapidly slow), that is not the key reason for the appreciating property prices.  Rather, it is because many (especially young) Australians have used large amounts of debt to pay double for their residence than they ever have previously. (Other factors, such as the appalling first home owner’s grant, discounted capital gains tax and negative gearing have assisted in residential housings rise).


Source: Steve Keen’s Debtwatch

Moreover, while the price of gold has increased by 11.99% annually since 2001, that rise has been clearly outstripped by the increase in residential property in all capital cities other than Sydney (which rose substantially prior). For example, since 2002, the ABS calculates that Melbourne prices have risen by 15% annually, Brisbane by 19%, Adelaide 16%, Perth 22% and Hobart by 23% per year.

It seems somewhat ironic that Robertson would (not unjustifiably) point to a looming gold bubble while at the same time, criticising others for suggesting that Australia is trapped in a housing bubble.

Robertson’s employer, Macquarie Bank, appears to be taking a similarly bullish view on property. Only recently, Macquarie purchased a 53% stake in Rismark, the company run by Crikey’s and Business Spectator’s Chris Joye. Rismark sells an innovative shared-equity mortgage product. Shared-equity products require a rising housing market (as consistently advocated by Robertson) to be able to sell what is essentially a wholesale investment in residential property to investors.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey