‘Aussie housing is historically cheap.’
If I said that to you, what would you think?
Perhaps I am a madman, a fool, or have an agenda.
And yet, this is exactly what I read in Cameron Murray’s recent submission to parliament.
Cam Murray is an economist who focuses on housing. He’s one of the few that called housing to go up last year.
I’ve been aware of his work for a long time. I did a podcast with him years ago on a paper he produced.
It showed how the Queensland planning and rezoning process was as bent as a dog’s hind leg.
Local councillors and developers were up to all sorts of friendly back scratching.
Nothing I’ve seen since has made me question his conclusion. Appalling stories appear in the press from time to time.
There was the one where Liberal Party members and donors bought up a good chunk of Fishermans Bend in Melbourne. How convenient!
It was just before the Lib government conveniently rezoned it for development. The windfalls — for doing nothing — were in the millions.
Then we had this story in the ABC last year…
‘A former City of Casey councillor accused of taking bribes from a property developer also received a quarter of a million dollars from the director of a Kuwaiti holding company, an anti-corruption inquiry has heard.’
See, it’s not just Queensland!
Let’s get back to Cam Murray. What brings about his new paper?
We have another review of housing prices and affordability going on.
The mainstream press likes to proffer the usual garbage about supply being the issue. Politicians run with the same idea as it’s a convenient scape goat.
What bullshit.
Cam’s paper is the one to read! You can do so here, in full.
However, I’ll go over the main points.
Cam’s crunched the numbers here. Australia has more dwellings per person now than ever before.
Cam also points out that Australia’s big property developer have no incentive to bring lots of new supply to market.
In fact, it’s the opposite. They can hoard their land banks and slow it down in order to capture the appreciating value of their holdings.
Holding supply off market allows them to sell their stock for higher prices.
One myth the mainstream and lobbyists like to perpetuate is that government charges and ‘red tape’ hold up all the Mother Theresa’s in the development industry. They are, so they say, just trying to do the right thing by first home buyers.
Cam sends that idea over the fence for six too.
The supply argument is junk.
What drives prices up then?
Rents in Sydney and Melbourne have risen nowhere near the same rate as house prices.
That’s because land values, credit, and other housing influences have combined to drive them sky-high.
Rents are tied to wages and the economy and not ‘financialised’ in the same way. They’re connected to reality.
Generally, we think of housing as a consumption good where nice families do their best to nest and nurture the next generation.
However, Australia’s tax and credit policies have made the whole sector a plaything of financial markets and they are priced accordingly.
The massive drop in interest rates keeps mortgage rates way down and affordability in range.
I’ll be chatting with Cam this week for my podcast. If there’s anything you want to know about the housing cycle, send in your questions at our contact page. You have until Wednesday.
And if you want to make a buck from this ridiculous dynamic — potentially extremely profitable — then sign up to Cycles, Trends & Forecasts.
For example, I’ve tipped some developers for their big land banks.
Allowing land values to inflate is not so great for first home buyers…but rather wonderful for their shareholders.
If you want to get smart about housing, I urge you, go here.
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
PS: Don’t forget to check out my funky new podcast here. Already we’ve chatted to real estate expert Catherine Cashmore, investing legend Jim Rogers, contrarian value investor Greg Canavan, and my trading mate Murray Dawes.
Again, check it out here. It’s free!
