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Sean Reynolds, Housing Affordability blogger, writes: Re. “Census reveals the consequences of a national housing myopia” (Friday, item 2). Bernard Keane, once again you’ve got it absolutely wrong on the housing supply/demand picture, and the economics of housing that has caused the most recent bubble — which is exactly the same problem that has caused the GFC — excessive money supply or credit from the banks is pretty much the sole cause — creating money out of thin air based on wishful dreams about what housing is worth now and what it will be worth in future.

As a simple, quick example, I would point out that the population of Tasmania has hardly changed at all in 10 years, and yet asking prices for houses in Tasmania have doubled in real terms just as they have on the mainland — clearly with a fixed population supply of housing cannot be the inflationary driver — they’re not demolishing houses in Tasmania to boost demand.

What has happened is that Australian bank and non-bank lenders have doubled the pool of money available for people to borrow to buy housing, and competition between owner-occupiers and investors to get prime properties near good schools etc has driven everyone’s borrowing up to the new limit of whatever the banks are prepared to lend. This is exactly the same phenomenon that has lead to the downfall of the PIIIGS, it is not just identical, it is in fact a part of the same magic credit creation process that has been going around the world, where money supply has been boosted everywhere at once.

Further, the house price bubble has happened in several countries at once, not all of which are experiencing much population growth, such as France, Ireland, the Netherlands, and Spain, further disproof of your thesis.

Bernard, your interpretation of why housing starts have ground to a standstill doesn’t make sense.  The notion of an under-supply coupled with no demand and no housing starts is just not possible. What is really happening is that the banks have run out of borrowers to borrow at ever higher prices, and lack of demand has brought new starts  to a standstill,  i.e. there is no housing shortage, the number of new houses is about right for the population, but it is all overpriced due to the way the extension of credit, real estate agents and a dysfunctional market approach to housing work.

Bernard, you seem to be overlooking the 100% inflation in housing prices seen in the past 15 years exactly coinciding with the explosion of easy credit from Australian banks and NBLs such as Aussie Home Loans, starting from 1995. The pool of available credit doubled, and housing prices doubled.

Real estate agent numbers have dwindled from 72,000 a few years ago to 51,000 today, victims of extremely small sales turnover at high prices. Once the irrational exuberance has gone out of a bubble, the first sign is a low volume of sales of the inflated commodity preceding collapse.

Rents have gone up because so many underwater landlording speculators paid too much for their so-called investment properties, negative gearing is not bailing them out, and once they realised capital gains would not be there in the  future either, they felt they had little choice but to start cranking rents, aided by the collusion of the REIs in each state coming up with pretexts, or in some cases no pretexts at all — if all landlords lift their rents together, aided by REAs who are members of their REI,  there is nothing to stop them, and it is the new “market” price.  They are not being lifted because of a supply shortage, but because of their debt positions.

If you reduced house prices, sales volumes would increase, more Gen Ys would be buying and so on. Your interpretation of the no doubt correct census stats is completely economically erroneous. These are the kinds of conditions that came to prevail in the Great Depression for exactly the same reasons (and the REIs were active then too, making exactly the same arguments, I’ve seen articles from the archives) — depressions and recessions are always caused by an explosion of credit emanating from the banks with all the flow-on effects from the subsequent correction or collapse of the mis-spent and in reality non-existent money supply.

Bernard, you’re on the wrong side of history and the wrong side of economic understanding, I’m afraid, casting no light on the realities of the housing price bubble.


Justin Templer writes: Re. “The fight to save Fairfax: journos call on celebs, pollies” (Friday, item 1). I am confused by the hue and cry for Fairfax to maintain its editorial independence and the suggestion that Gina Rinehart commit to refraining from influencing editorial content.

The editorial content of a newspaper, and the editorial itself, is the product of the mindsets of the people at that newspaper — when David Marr or Ross Gittins writes an article it is influenced by their personal view. Likewise the editorial itself is a product of the editor’s opinion — to call it independent is nonsense.

By its very definition it is opinion — whether it is the editor’s opinion or Gina Rinehart’s opinion one thing is certain, it is never independent — although writers from the left seem to more readily be anointed with the saintly glow of “independence”.

Glen Frost writes: Re. “Beecher: Corbett, the functionary, sees Fairfax die on his watch” (June 19, item 1). I want to congratulate you on your coverage of the changes at News and Fairfax, especially the article by Eric Beecher — what an eye opener!

This is what I pay my subscription for — real insight into Australian corporate decision making. I laughed at this article as it reminded me of a conversation I had with a (very snobbish) Australian recruitment agent in Sydney when I arrived here from UK in 1994. He said to me “you don’t have Australian experience, Glen” — to which I responded: “Are the laws of physics and business different here?” — he looked dumbfounded and blabbed on about how contacts and the right school/uni were critical.

Hopefully, Australians will view the Fairfax experience as an example of how the era of the “old boys club” is almost over. The time when Australian companies are protected by powerful friends and governments is drawing to a close.