'It's not a bubble' say the housing boosters, even though average Sydney house prices have risen by 19 % over the past year after years of double-digit price increases. The mighty OECD have expressed concern, suggesting sensibly enough that a collapse might plunge Australia into recession. The OECD estimates that 'the' Australian housing market has risen by 250 % in 20 years, allowing for inflation. Yikes!
A reader asked 'who is to blame?' If there is a housing crash followed by serious recession there will be several guilty parties.
* The RBA cut interest rates too far, but it presumably would say it was doing its best to keep the overall economy on an even keel whilst controlling goods and services inflation. Modern policy theory holds that asset inflation must be contained by policies from 'prudential' regulators, possibly supported by rate policy of the central bank if their primary role is not compromised by that support.
* The chief prudential supervisor, APRA, failed to play its part, although it would say it: (a) did not have a clear mandate to control excessive or foolish bank lending; and (b) it did not believe the boom in house prices in Sydney and Melbourne was a dangerous bubble. Of course if the OECD's fears are realised with a housing collapse followed by Australia's first recession for 30 odd years, APRA will be the chief villain.
* Excessively generous tax treatment of houses owned by investors via a 50 % discount on capital gains and 'negative gearing'. Why the current government has not reformed this policy escapes this humble scribe. and why it does not seize on Labor's suggestion that negative gearing be reformed (in the interests of a national approach to fixing the Australian economy) is equally mysterious. Could it be because it is because this is a major way that cabinet members build their family's wealth? If this turns out to be the case, blame will bury the current government for a generation.
* Local governments have failed to move quickly enough to allow denser population in the inner parts of Sydney and Melbourne and to free up rural land for new suburbs. This would of course require new infrastructure or improved infrastructure and State and Federal government are reluctant to fund spending on anything like a suitable scale.
* As Tony Abbott has suggested, perhaps the Federal government has been too keen on attracting migrants. And also failed to insist newcomers be required to live for, say 5 to 10 years in towns or cities needing a population boost. Those who try this find a welcoming population and faster acceptance of the Aussie culture and lifestyle than those who gather in ghettos in Melbourne and Sydney.
It's quite a story, dear readers, with many apparently uncordinated villains. Perhaps when we see the benefits of a housing slump followed by a severe recession these villains will be heroes, but that is a thought too close to the bone to be entertained.