How Property is Consuming Australian Household Prosperity

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Even more good economic data out yesterday sent the Australian dollar surging above 91 cents overnight. That’s a three month high.

January retail sales rose 1.2%, the fastest since Kevin Rudd’s 2009 stimulus cheques. And the trade surplus almost tripled month over month as the mining boom stopped importing capital equipment and continued exporting ore.

Despite the good news, we doubt Dan Denning is going to let up on his three critical forecasts for 2014. But for now, Australia is travelling darned well. And Kris Sayce is onto the case. The new production phase of the mining boom could trigger an impressive snap back in the fortunes of our mining companies. The smaller miners might actually start to generate some serious cash flow without as much capital expenses or capital raisings.

You can accuse us of living in the past, but we’d like to take a peek at what 2013 was like for the Australian household’s spending habits amongst all this prosperity. Commsec has the data.

It wasn’t a great year for Australian spending overall, which grew at just 2% in real terms. Excluding the financial crisis, that’s the lowest rate of growth since the early nineties. Distressingly, spending on alcoholic beverages actually fell around 2%! Gambling reached its lowest share of the household budget in almost a decade. (Financial market speculation was not included in that figure.)

The share of the budget going to what the Australian Bureau of Statistics calls ‘essentials’ fell to a record low of 27.4%. Going back 50 years, half of the typical budget went to such items.

Before you think all of this is good news ask yourself; where did all the money go?

Into anything that involves Australian property, is the answer. Electricity and gas bills surged. The mortgage and rent now takes up 20% of the household budget, up from 8% 50 years ago. And remember, interest rates are very low.

As we explained yesterday, prices simply adjust for prosperity if supply and production doesn’t increase. That leaves policy makers with a dilemma. What’s the purpose of the economy? Allow people to have more stuff, or make their assets more expensive?

When it comes to most things, we’ve chosen the former. Our phones, cars, TVs and everything else we consume has steadily increased in number with wealth. Kris Sayce is the only person we know without a mobile phone. While the number of consumption items has increased, their prices steadily fell over time. That’s the basics of capitalist progress.

But it doesn’t apply to homes. Policy makers decided the supply of homes had to be restricted. And so, instead of having more, better and cheaper homes as we grow wealthier, we get more expensive ones.

Of course, that’s a good thing…if you already own the home you want to live in or invest in property. If you’re just starting out, it’s a pain in the neck. Of course, some parents are finding it’s a pain in the neck for them too.

Regards,

Nick Hubble+
for The Daily Reckoning Australia

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Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
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3 Comments on "How Property is Consuming Australian Household Prosperity"

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slewie the pi-rat
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SHIBORs are flying high… as Chinese tippy-toes are testing the waters of Lake Default, here is what’s happening to the collateralized stash of Dr. Copper [down 3.87% as i type]: http://futures.tradingcharts.com/intraday/HG_K4?anticache=1394208586 the first-ever China onshore default is for US $14,700,000. this figure [allegedly] represents interest payments not made by Shanghai Chaori Solar. my sense is that this has been VERY carefully planned and is simply another EXPERIMENT of Central Planners, banksters, and their beloved collateral daisy-chains and default swaps. however, i am rarely right about anything, financially, especially women… since slewie has a copper ‘hoard’ of pre-’82-83 US pennies [95%… Read more »
Nexus789
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The ‘bubbling’ of property and the ‘privatisation’ of all sources of housing is merely to maintain a mirage of sustainable wealth as the productive economy collapses. At some point, like in the US, the house as an ‘ATM’ will collapse.

garry
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Still haven’t got the high priced property scenario at the Daily Rek – yet these pages purport to offer sound advice

Meanwhile the opposition advisers over at BS have finally cottoned onto the game at hand –

Saying ….
Credit Suisse, the investment bank estimates that 12 per cent of all new housing purchases and up to 18 per cent in Sydney and 14 per cent in Melbourne are by Chinese buyers.

Try that sort of external % hike with any stock on the ASX and you will see how the price moves

wpDiscuz
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