Traders Sell Bank Stocks Due to Goldman Sachs Surprise


“I was in bed last night with Alan Greenspan,” your editor told a colleague this morning.


“Wait. It’s not what you think. I’ll explain in the DR today.” The explanation is below. But first, what will today bring for stocks?

On Wall Street the Dow fell by 1.7% and is back below 8,000 again. It looks like traders took advantage of yesterday’s earnings surprise from Goldman Sachs (NYSE:GS) to sell bank stocks. That sounds like the old, “buy the rumour, sell the news,” theory at work. And it tells you there’s not a lot of confidence that bank stocks have truly recovered and can lend the world economy into newfound glory.

By the way, a follow up to the Goldman earnings announcement. The Financial Times reports that Goldman’s performance was calendar aided. The FT says that Goldman’s “Fourth quarter ended in November 2008, but after converting to a bank holding company last year, Goldman adopted a calendar-year earnings period starting in 2009. As a result, the company did not have to include December in its first-quarter earnings, a month in which it sustained $1.3 billion in pretax losses.”

If you include the pretax losses from December, Goldman made $500 million in the first quarter, which is a lot less than $1.88 billion (but a profit nonetheless). Goldman’s Chief Financial Officer David Viniar also told analysts the Goldman’s first quarter profit was not boosted by profits from the $14 billion in U.S. taxpayer money it received, via the bailout of AIG. Viniar said that the profits from AIG “rounded to zero” once Goldman’s hedges to its AIG exposure were included.

What we wonder is why Goldman needed to be made whole at all if its exposure to AIG was hedged? And why did Goldman get paid US$14 billion for its securities when the market value was around $8 billion?

Questions and more questions. Goldman’s fixed income, commodities, and currency trading division (FICC) generated 70% of its net revenues for the quarter (US$6.56 of US$9.42 billion). While the former investment banking giant made just $823 million as an investment banker, it generated $7.1 billion in revenues trading and investing, although it’s not really clear from its financial filing just how that $6.5 billion was made by the boys at FICC.

Our point? This isn’t the sort of report that gives you confidence that credit market losses are behind us. More on that below, as we delve into yesterday’s numbers on commercial finance in Australia.

Speaking of Australia, the S&P ASX/200 is now 21% up from its low point on the year of 3,120. Yesterday’s close at 3,753 leaves it just below its high for the year of set in the first week of January. Will it matter if the index makes a new closing high today?

“No. I don’t think so,” said Swarm Trader Gabriel Andre on the phone today. “To be important, it needs to close above 3,820,” he added.

We’d love to unleash Gabriel and his technical analysis to produce short-sell recommendations. But the regulators are making it really hard to make money selling stocks short. So instead, we’ve begun looking at the top 50 ASX stocks on a daily basis, identifying long-term support and resistance levels for each of Australia’s top 50 largest companies. The goal is to alert readers to when they are overbought or oversold. We’ll keep you posted on the progress.

And the rest of the market? It’s meandering. Qantas announced its worst half-year result in 14 years yesterday. It’s also firing 1,750 people. But is this actually good news for the economy?

Unemployment is said to be a lagging indicator because it tells you where the economy has been, not where it’s going. That is, Qantas is firing people because the last half-year was bad, not because it expects the next half-year to be worse. At least, that is one way of looking at it.

But there is a deeper back story, too. In a routine recession, businesses reduce payrolls to match reduced demand in the economy. But this is not a routine recession. We would argue that businesses are reducing payrolls now because the entire economy has been built for an illusory demand propped up by credit.

With the credit depression, households and businesses are cutting back on spending and investment, respectively. What this means is much higher unemployment than anyone is currently figuring. And it means that because the entire structure of global labour markets has been based on a demand that’s clearly not sustainable without massive new levels of credit.

For Australia, that means fewer people hopping on Qantas jets to holiday in Thailand or Europe. It means fewer cars being built in Australia for consumers buying those cars on credit (the ABS reports a 24.6% fall in personal finance commitments for new cars in the last year). And by the way, for China, it means a lot fewer jobs in urban factories for rural workers who’ve come to make the stuff that Americans buy.

Do you think we’re just making this all up? Au contraire mon frère!

The ABS reported yesterday that total finance commitments to business fell by 14.7% in February to a 42-month low. Translation? Either the banks aren’t lending or businesses aren’t borrowing. Or both!

The numbers are actually worse when you stretch them out over time. Over the course of the last year, the seasonally adjusted commercial finance figures show a 43% decline from $44.3 billion in February of last year to $25 billion in February 2009. If your eyes aren’t bleeding yet, stick with us for just a few more pieces of data.

In a worrying trend for businesses, the big month-to-month decline in finance commitments came not in fixed loan finance but in revolving credit. The fixed loan finance figures show commitments declining from $29.6 billion in February ’08 to just $16.3 billion in February ’09. That’s a 45% decline, year-over-year.

That’s surely the sign of a credit depression. The only reassuring news is that the month-over-month fall in fixed loan commitments was just 7.3% (from $17.6 billion in January to $16.3 billion in February). But in the revolving credit sector (shorter-term, higher-interest borrowing) the month-to-month numbers are pretty alarming.

Revolving credit finance commitments to business fell about 6% year-over year, from $14.6 billion in February of 2008 to $8.7 billion in February 2009. But in the last month? They’ve fallen from $11.6 billion in January to $8.7 billion February. That’s a decline of 25%.

What does all this mean? Well its statistical confirmation of what you’re hearing on the street. Banks are getting tight and businesses are getting terrified. We have a modern economy that lives and breathes and bleeds on credit. The supply of that credit is shrinking. What do you think happens to the economy then?

The only positive way of looking at yesterday’s news is that it represents a “liquidation” of labour. This is not exactly good news for the liquidated employees of Qantas. But one the admonitions of the Austrian school of economics is that you can’t move to a recovery and new growth (new production possibilities frontiers) until the bad investments from the previous credit boom have been liquidated.

The trouble is, there is still a lot of liquidating to do. And we are not just talking about labour markets where, after all, Qantas expansion was the result of low fuel prices and globalisation for many years. No. We’re talking commercial and residential real estate.

That’s where Australia’s banks have the most exposure on their loan books. And that’s where you’ll see write downs and losses on commercial property portfolios. We suspect that’s why the banks are getting tight. They are preparing for much tougher times. Are you?

Well you wouldn’t be if you were just listening to the good folks at the Reserve Bank of Australia. Luci Ellis, the head of the RBA’s financial stability department, said that lending standards never delved too low into subprime territory in Australia to lead to a mortgage lending bubble.

In comments she delivered in Melbourne, she added that the inability of Australians to deduct the interest on their mortgage from taxes gave them a financial buffer against falling prices. She said that Aussies tended to pay off their mortgages more quickly because of this, whereas in America, the interest deduction presumably encourages people to maintain high balances on their mortgage.

And what defence of bubblicious Aussie house prices would be complete without trotting out that old canard, the housing supply gap! “Unlike in the United States,” Ms. Ellis said, “housing supply [in Australia] had not boomed in the same way for the past five years. There simply has not been an overhang of supply built up that would subsequently weigh on prices.”

We’ll get to the supply bogey in a moment. But we’re certain Ms. Ellis knows that the supply of homes is just one part of the pricing equation. The other part is, of course, demand. And the demand for housing is clearly influenced by the price of money (mortgage rates plus the first home buyer grants). Everywhere else in the world, plunging interest rates led to a huge mortgage lending boom that inflated house prices at historic multiples of household income.

Nowhere else in the world, in fact, has housing become as expensive as it is today in Australia, when measured against household income. Two things make this possible. First is the availability of mortgage financing to lever up and get on the property ladder. Second, and more importantly, is the deep seated belief-encouraged and repeated by those in government and banking and real estate-that property prices always go up.

The Great Australian Property Price Crash is coming people. You can’t have a depression in credit and expect inflated housing values to magically levitate. The latest figures on housing and commercial finance show a few things. They show that first-home buyers are propping up the market while investors flee (as was the case in the U.S. in 2006). And they show that bank-lending to the private sector (both fixed loans and revolving credit) is retrenching.

But what about the great supply deficit? Ms. Ellis cites a report by the National Housing Supply Council. This “State of Supply” report is prepared by a committee of insiders from the building, banking, and real estate industries. You’d naturally expect them to conclude that the supply gap is large and growing.

Yet this is not exactly what they’ve done. They’ve confessed that their estimates of housing demand are based on statistical models. To quote directly, “The Council estimates that a minimum of around 85,000 dwellings is the gap (unmet need) in the supply of housing in 2008. This is based on the incidence of homelessness and the low level of vacancy rates in the private rental market.”

And you thought we were joking about the homeless. We’ve always said if there was really a supply problem, you’d see more homeless people. The estimate the Council comes up with for the gap assumes, we assume, that the homeless are homeless because there aren’t enough houses. This is nonsense. Studies show that a fair portion of the homeless choose to be homeless, or would be homeless regardless of historically low mortgage rates.

But that point aside, low rental vacancy rates are also cited as evidence of a gap. This is nonsense too. Couldn’t this also be the fact that so many Australians live in capital cities? And so many of them want to live in the same place? It’s not that there aren’t places to live. It’s that everyone wants to live in the same place, which violates the laws of physics, of social propriety, and also drives up rents).

In other words, maybe the two factors the Council cites in fabricating a housing gap have other, better explanations that a fictional shortage of housing. But maybe that narrative doesn’t suit the needs of people who make money selling houses.

Ah! A caveat arrives on cue!

“The Council acknowledges the crudeness of this [housing supply gap] estimate and also points out that there were some 830,000 vacant dwellings in Australia at the time of the 2006 Census. The Council has assumed that most of these were probably second homes, homes in the process of sale or homes awaiting redevelopment and that there is likely to be limited capacity for absorbing growth in underlying demand within the present level of housing supply.”

Baffling. Or just deliberate chicanery?

There are 830,000 vacant dwellings. But that, according to the Council, is not enough to meet the housing supply gap of just 85,000 dwellings? Math was never our strong suit. But this smells fishy.

Could it be that property investors, let’s say boomers sitting on property as a retirement income, are not prepared to sell those investments at these prices? There’s no urgency, after all. Do they expect to sell these properties to pay for their retirement? Or are they just taking advantage of the tax benefits of negative gearing?

Who knows, dear reader? But we’d humbly suggest there is no housing supply gap at all. You could bring some of those 830,000 vacant dwellings on the market by changing the negative gearing laws. And the elimination of the first home buyers grant would prevent so much future demand from being “brought forward” merely to prop up values for existing homeowners who want to sell now to the sucker first home buyers.

But we reckon none of that is going to happen. While the stock market wades through earnings information and employers batten the hatches and throw men overboard, Australia’s property market is headed towards an epic fall. More on the fall tomorrow. Oh! And we almost forgot, more on our dream with Alan Greenspan too. We promise!

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.


  1. Your arguments strike me as circular. On one hand, you’re saying there is an oversupply of houses across the land, 850,000 over 86,000 wanted. On the other hand, you’re saying that low vacancy rates are because everyone wants to live in one spot. You can’t have it both ways. If there is low vacancy rates in certain areas, ergo, there must be a shortage of suitable housing in those areas. Therefore, those areas must be somewhat safe from a fall in values, while other areas are at risk of a significant fall. Statistically, this may all wash out as a ‘fall in property’ but the person in the desired area might see a decline of 5% while the person in the undesired area might see a decline of 40%. Also, if ‘boomers’ are sitting on investment properties, but have no need or want to sell them, then, that is support for the market.

    I’m not arguing for or against the property market. But this article starts out with the end in mind, and finds arguments along the way to support it. In this way, it’s no better than an a Real Estate Institute report telling us all ‘now is the time to buy’, and then filling up column inches with all the statistics and reasons why the central premise is correct.

    Further, on this whole argument, you’re leaving out the small side issue that everyone needs a house to live in. Renting is not an option for many because of the inherent need for stability and permanency, particularly when it comes to families with established schooling and jobs. You can’t get a lease for more than 12 months on a property, and you can’t modify the property in any way – which is why many Australians would rather pay extra and own.

    I agree that the household income multiples are unsustainable, but you don’t seem to consider that inflation will take care of that – whereas all the other DR columns sound the inflation warning klaxxons with regularity. Inflation might mean a stagnation in property value for 5-10 years, but with inflation taking care of the mortgage in relation to income, does it really matter if you’re happy with your place of residence?

  2. Keep up the good work Dan.
    Common sense should tell us that economies generally are bloated. I welcome the hardships which lay ahead because the recent system has made spoiled brats out of too many. I pray I always live where individuals can work and create wealth for themselves and their families but when everything is given easily (credit expansion and high welfare)individuals become weak and immature as do family and community structures. When the end of it draws near they are too blind to see the whats really going on.
    Yes it will be so terrible when the contraction really gets a hold. People might have to relinquish their dream of living with their partner/wife in a modern palace with a million fancy gadgets at the age of 25.

  3. From: Steven Keen (

    Far from having an undersupply of housing, Australia may well have a substantial oversupply. It’s just that no-one is living in many of them.

    So what could these unoccupied residences be? Holiday homes? Some, of course, but surely not all of them. It is far more likely that many of these include “housing awaiting sale or development,” and “vacant dwellings”, as Hometrack put it.

    A very likely cause of this large stock of unoccupied homes is Australia’s system of negative gearing. Most “investors” build houses not for the rental income, but for capital gains, and rental returns in Australia are now so low that for many investors, the drawbacks of renting–damage to property, having to manage tenants, etc.–are not worth the rental income. Better to keep the property off the rental market, and claim the loss against tax. The under-supply of housing to the rental market, and the alleged shortage of properties for sale, could be a perverse result of Australia’s peculiar property development laws.

    This implies that the market dynamics could turn out to be very different than those who believe there is an oversupply expect. If prices start to fall substantially, then many owners who have kept their properties off the market may be motivated to bring them out of mothballs. The “undersupply” of both rental properties and houses for sale could thus evaporate, and rather than supply issues putting a floor beneath house prices, they could well pull the rug out from underneath them instead.

  4. Hi brc,

    One option would be to change tenancy laws in Australia. There are countries (e.g. Germany) where you can get “permanency and stability” as a renter. Another advantage is that rents are kept lower because many property investors aren’t so keen on having difficult to shift tenants, or ones that are difficult to constantly raise the rents on. Likewise, prices to buy are relatively reasonable.

    Home ownership rates are at drastically lower levels than in Australia, due to the lack of this artificial incentive for people to own a house. This is in the power of Oz governments to change, although it would also be a cultural change I imagine – trying to get Australians off the “must buy property ASAP” mindset may take some time.

  5. Dan guessed early on that Australian housing was a simple bubble and now he keeps sending out the same drivel without responding to his critics.
    Census data shows that the percentage of houses vacant rose from 3.5% in 1911 to 9.4% in 1976 and then flattened out and reached 9.9% in 2006.
    So if something could drive our vacant house rate back to 1976 levels it would free up just 39000 dwellings, and going back to 1961 levels would free-up 287000 dwellings.
    Perhaps Dan Denning is advocating cutting our holiday allowance back to 1961 levels. This might result in census people finding more people at home on census night. Brilliant eh? Immigration into Australia is running approx 200,000 per year, so even if Dan Denning’s fantasy came true, the extra dwellings would not stay vacant for long. Besides, many are probably in holiday areas remote from employment.
    Dan the message is simple. There might be a price bubble, but there is also a shortage. Prices will hopefully crash, but the shortage will remain.

  6. The concept of a Housing Shortage is a relative one. In less affluent economies you simply find more people living in each available dwelling. Namely, people’s standards of living are lower. In fact in those same less affluent economies after a property boom, you can find lots of vacant properties whose owners are very highly motivated to sell. While the people who really would like to be living in those vacant properties simply don’t have the money or can’t borrow the money or don’t want to borrow the money, to buy the property.
    So you find things like a married couple living in a one room apartment (which is the lounge room during the day with a double lounge chair that folds out into a double bed at night) plus an eat in kitchen and toilet and a bathroom – With a single person boarding with them who rolls out the mattress she sleeps on each night on the bathroom floor. And rolls it up in the morning again when wakes up. Or houses of about 100 square meters that have been split down the middle to give two dwelling areas of about 50 square meters each, in which a couple with only one child can and actually do manage to exist quite OK.
    I suspect that a lot of Australians might struggle to get their heads around such concepts? But if you have spent time in a country where such things are simply the accepted norm, you will actually find it a bit of a challange to buy a double lounge chair that does NOT fold out into a double bed – Even for more afluent people who do actually have a lounge room that is not always required to double as a bedroom at night, it sure is a handy way to accomodate guests.
    And that is without dropping living standards to the point where people start cutting holes in their ceilings with ladders leading up to matresses that have been placed up there on some roughly installed flooring.
    So does Australia have a housing shortage? Not in absolute terms in any way at all that I can see. But based on our current standard of living expectations, and government interventions that attempt to support those, one can make an argument for it apparently.

  7. I guess the basic question is whether one thinks Australia’s real economy and our associated standards of living will decrease, remain stagnant or increase over whatever timeframe is of particular interest to a person. Or putting the question another way perhaps: More McMansions or Less (percentage wise)?
    But either way, house prices “should” drop in recessions. But Australians haven’t seen a recession for so long they either geninely don’t know that or just possibly could have forgotten.
    Can government avert that otherwise natural process with inflation – Yes, that is the wild card in the deck! (And deflation in Oz is looking less likely than it did a few months back.)
    But at some point if government is too successful in their inflationary endeavours, we just might find interest rates at 18% again – With their poor confused little suasages at the RBA attempting to “correct” things back the other way.
    Which isn’t catastrophic (PROVIDING YOU HAVEN’T LOST YOUR JOB) – Because your wage will be going up and so will your house price – Albeit at a lagging rate perhaps – Because the Australian property boom of the last decade has been SO extraordinary for it to seem quite improbable that it really can continue ad infinitum short of the RBA getting in on some sort of Quantitative Easing act REALLY big time maybe?
    And as little respect as I have for either Rudd or Stevens (or Turnball), a report I read recently to the effect that money markets think Australia is one of the developed Western countries that is less likely to go for QE, gives me just a glimmer of hope.
    I really must admit this is all becoming just a bit much for me – My poor tired old brain isn’t up to having to try and think this hard this much any more.

  8. David V – I can’t speak for Australian house prices generally, but Brisbane house prices which I do follow entered what could very sensibly be assumed to be the final blowout exponential increase peak phase of their bubble in Quarter 1 2008. Then started to drop. But the FHOG boost (in October 2008?) served to resucitate the bubble in the lower end of the market at least – I certainly saw one property where the owner required an “Urgent Sale” at maybe $300,000 taken off the market and relisted a week or two later (still requiring an “Urgent Sale”) but at $310,000 maybe – Forgive my “maybes” and “perhapses” please – I’m working off a dated recollection – Maybe it was $295,000 bumped to $305,000? Or $305,000 bumped to $315,000. But you take my point I suspect.
    Read my posts that follow yours and you might be a bit less sure that Australia has a housing shortage. (I for one can think back to the days [in Australia] when as a a younger man employed fulltime in a reasonable paying job, myself and 3 mates lived in a two bedroom apartment – Very contentedly. Two of the blokes occupied the two upstairs bedrooms (a bedroom each), I occupied the loungeroom and the fourth bloke had a matress on the floor under the internal staircase and some other space re the that generall area to call his own I’d guess? But none of us ever felt at all hard done by as I recall? That was about 1988 I’d guess. And there is no reason why the two blokes in the upstairs bedrooms couldn’t have had “wives” with them – Except it didn’t suit them I suspect.
    Short answer: There is no shortage of housing in Australia. But Australians do have quite high standard of living expectations. These may drop. Or they may not drop. That will depend on the real economy.
    PS: I currently live in a 3 bedroom hoouse on my own. And could add two additional bedrooms to it for less that $5,000 total. I have 4 neighbours. One of whowm also lives in a house on his own – It might ony have 2 bedrooms but I’d guess it has three. Another 3 bedroom house is rented to a couple with 2 children. One more is two storey with a couple living upstairs (in three bedrooms almost certainly) but also developed underneath with the exception of a kitchen I think? No big deal – $10,000 spent and it accomodates any other couple and 1 child. And the last one is so atypical I feel a bit embaraased mentioning it to support my case, but it is true so I will – An old family type hectare of land with three houses on it. Two of which are permanently vacant – With one of them being lowset timber (3 bedroom I’d guess?); Another being highset brick – 3 bedroom upstairs but certainly all enclosed if not actually developed ubderneath – I dunno?) And the third being highset brick/set developed underneath that is occupied by a gent and his cousin. There is also a tennis court on the block. And it is all very close to rail with shops and schools etc all very handy.
    Additionally the UK and Canada also thought they had Housing Shortages before their property bubbles crashed – You can Google that I’m sure if you wish – I did months ago.

  9. Amazing thought processes at work here.
    Dan D thinks that there can be no shortage if he can find a single vacant house on Census night.
    Ned S thinks that there is no shortage because we could pack more people into houses.
    Ned S also thinks there can be no shortage in Australia because some people in Canada thought there was a shortage in Canada just before prices fell in Canada. Bizarre!
    The facts are that the Australian governments keep cramming in immigrants at a faster rate than housing and related stuff is built to support the higher population. This has resulted in a fall in living standards and higher prices being paid for decent housing and many people missing-out on decent housing. This problem is rightly referred to as a shortage.

  10. There are a lot of single person house holds in Australia. I would say that this has been a symptom of a rising social mood for decades. What do people think is going to happen as the social mood gets more negative,unemployment increases, real estate values start falling and times get tougher. People are going to sell their properties and move in together to form multiple person households. That and the fact that the average cost of a house is 6 times the long term mean is good enough for me. Houses will correct back to the long term mean and because there will be panic selling in the housing market, house prices will over correct. My prediction house prices will correct back to 2 times the average yearly wage,

  11. Re my post above, “about 1988” should have been “about 1978”
    I’d also note that with the exception of the rental house I mention, I’d be pretty suprised if any of the other houses I mention have mortgages on them. And 4 of them are low set timber houses that could be raised and developed under – Not cheap, but still a heck of a lot cheaper way to get another 3 bedroom dwelling available than buying a vacant block of land and building on it.
    So why isn’t all this surplus capacity (both that which already exists and that which could be brought into existence much more cost effectively than building new houses on new land developments – typically in ever less conveniently and less well serviced located suburbs) being utilised? Lots of quite specific reasons I’d say. But at the end of the day they pretty much all just boil down to a combination of the following two:
    * The real economy has been so good for so long that general economic conditions haven’t forced it to happen, and
    * All three levels of government actively discourage it through legislation. (Commonwealth government CGT legislation, State government building codes and Local government town planning regulations.)
    But somehow I just can’t get myself to think in terms of singles, couples or even families with up to two children living in 3 bedroom dwellings of about 90 square metres each, albeit two of them, one under the other, on one block of land of about 600 to 800 square metres each, with cars parked seperately but still under cover, as being some sort of equivalent to living like rabbits in a warren or rats in a hole. Because it simply isn’t – It’s actually somewhere between “adequate” and “more than adquate” I’d suggest – And a certainly a very high quality living standard by any more general world standard.
    So any housing shortage that arguably exists is a direct product of Australian’s expectations and government legislation. Which government would like to “fix” – On their terms – Which involve encouraging/forcing more Australians to take on more debt to build new houses in new subdivisions and keeping the banking and building and real estate industries all very well fed.
    Do rely on any socalled housing shortage to keep prices up if the real economy turns nasty. Although other government measures just possibly could – But they’ll be centred around forcing high levels of inflation.
    On the broader level, the politicians and central banks of the developed Western world have lost control of their economies and are trying every trick they can dream up to get some level of control back. Presumably they will succeeed – In a fashion. But someone will have to pay. As a baseline, individuals should be trying to ensure that they don’t pay more than their fair share – Even if one isn’t actively trying to profit from it.

  12. I’m tired obviously – I left out the word “not” in my intended statement “Do not rely on any so called housing shortage to keep prices up if the real economy turns nasty.”
    Yes, David V – The “rats in hole” argument can be raised by those who don’t think it is desirable for Australians to use their existing housing capacity more efficiently. The less efficient our usage the more we all have to pay on average I’d expect. So it becomes a matter of balance. And my point is that ultimately that balance is determined by the real economy (and some government manipulation) rather than whether one perceives we have a housing shortage or not.
    What I certainly say is that what I see in my general neck of the woods is that there are lots of 3 bedroom houses with only a single person or a married couple in them – If you are seeing something very different then there could be a genuine housing shortage where you live. But there certainly doesn’t seem to be one where I live.
    As to the UK and Canada situations, my point there simply is that thinking that one has a housing shortage does not necessarily make it so. What I specifically said was “the UK and Canada also thought they had Housing Shortages before their property bubbles crashed”
    Rather than your re-interpretation of that comment into “Ned S also thinks there can be no shortage in Australia because some people in Canada thought there was a shortage in Canada just before prices fell in Canada. Bizzare!”
    Now a re-interpretation like that truly IS bizzare I’d think? But maybe you are tired too.

  13. Um where to start. Housing shortages based on population growth as mentioned by David V. Australia had 135,000 immigrants last year and the intake this year is 115,000 (ABS stats).
    We built 96,000 dwellings in 2008 (ABS Stats) if we have 2 occupants per dwelling (unlikely) then we have 192,000 housed. Total population growth including immigration was 237,000 in 2008. Given not all of those people needed new dwellings we have built more than enough houses to accomodate the population growth. Of the 135,000 immigrants 40,000 were children so we only need about 50,000 dwellings to accomodate them (based on 2 adults per household) less if there is only 1.
    Looking at UK as a comparison they were also saying they had a housing shortage (even greater per capita than ours). Population increased by 496,000 of which 237,000 was immigation. Property prices down by 30% in 2008 and still falling. Go to the bubblepedia website for latest articles showing the decline in property prices here.
    Ignoring all that if people can’t find work or lose there jobs then what does it matter if we have a shortage or not prices will fall as there will be fewer buyers.
    Prices in Australia’s middle to higher bracket are in free fall and consumption was based largley on rising property prices and the ability to withdraw equity from the home. First home owners will have no equity or very little equity and high mortgage payments so will not be contibuting to consumption much for quite sometime. I see things sliding very quickly ovr next 6 mths. I sold all of my investment properties in last 6 mths and paid out all of my debts, so ready for the worst.

  14. Oh PS I live in Moorooka in Qld and we have large numbers of Sudanese immigrants and I can tell you there is more than one family per rented dwelling and this also true of mny of the Asian neighbourhoods with multiple families in some houses. In my last remaining investment property my mother, sister and brother and his family live in the one house to keep costs down. So jut because we have 135,000 immigrants does not mean we need 135,000 houses.

  15. You can get as technical as you like I guess and spend many hours debating whos right and whos wrong, time will tell. But I just can’t help thinking about places like London, Barcelona, Hong Kong, San Diego, New York, Vancouver, etc. when people state their primary reason for a floor in the housing market here, i.e. we have a housing shortage. Every one of these cities continued to state all through their crashes (which are continuing) that there is little land and very tight supply. Well as we now knnow, prices are in total collapse because of limited demand and limited availability of credit (i.e. folks have to put down 10% to 15%, and have a job!). Quite simply, consumers are tapped out and banks are assessing risk properly now after years of an orgy of lending. Doesn’t help jobs across all industries are bleeding. Have you seen industrial output of major econmies? Scary stuff. House prices that are nine times income is riduculous and you dont have to be Einstein to conclude this is unsustainable. My guarantee for the real estate pimps, a minimum 30% decline in house values in Australia within 2 years.

  16. David – Thanks for the ABS stats. And anecdotal confirmation of my suspicion that people in Australia do/will certainly use housing more efficiently if they find themselves financially challenged.
    I’m not saying it is at all desirable for lots of people to be packed into housing. (Such as I’ve seen elsewhere.) But I am saying that it does happen in difficult economic environments. And that from what I can make out, person/dwelling rates where I live could certainly go up quite significantly without Australians living in anything that even remotely approaches what we consider as being the ghetto like conditions one can see overseas.
    A bit more anecdotal stuff – A young brickie I was chatting to recently said the building game is real slow. And that mates of his in the game are looking for any cash jobs they can pick up. A real estate agent could tell me that the First Home Buyer stuff is still moving OK. But the rest is slow. Of course one has to ask at just what point we are going to run out of First Home Buyers that the banks like the look of with their recently modified Loan to Value Ratios. And keep an eye out for what the government says in its upcoming budget re continuing (or even increasing?) the FHOG.
    Re the UK, a Brit mate of mine could tell me that when their economy slumped, a lot of the Polish immigrants simply went back home – Which took some pressure off the perceived housing shortage there I’d guess? Not that I think much of that will happen in Oz. But in that regard it is worth noting that Mr Rudd’s lot recently told potential overseas immigrants that the building trades were no longer on Australia’s critical skills shortage list – Watch what the government does rather than what it says I reckon.
    If you had investment properties with sizeable mortgages against them then I think you made the best possible call under the circumstances recently (with all its inherent unknowns and instabilities)in getting out and clearing your debt.
    I’ve hung onto mine – At least in part because I have no mortgage. But barring some really strange government hocus pocus – Which even Mr Rudd doesn’t really think he can pull off given the recent decision re “No more immigrant building tradies for now thanks – Well leastways not unless the boss can prove there are no local tradies available”, then I expect house price drops of something in the order of 20% – More in some places for certain types of properties. Less in others for other types of properties. No big deal if one is in it for the long term with no mortgage. And thinks they chose well located property with development potential originally anyway. But it could be a very big deal if one is a heavily mortgaged recent First Home Buyer who loses their job. Thus the recent bank promise to not evict a home owner who loses their job for 6 to 12 months depending on circumstances.
    There are just too many stars lining up from those in positions to know that are saying unemployment is heading up and house prices are heading down for me to want to argue with them.
    But I will argue against policymaker waffle that attempts to use the housing shortage storey to try and keep prices propped up because I just don’t believe it will hold water if put to any real test by the economy. And I don’t like being conned by government. Or seeing other people conned by government.
    One can’t argue against their storey about interest rates being low – Because they are – But who wants to borrow to buy housing at these inflated prices anyway except for people who don’t own a home and are a bit afraid they may miss out on the raised FHOG if they don’t jump now?
    Leveraged investors like yourself have been bailing en masse for a good while now I suspect. Quite sensibly. Take your profit and run – The downside risk had become way too high.
    I’ll be watching for a Rudd government budget announcement re the FHOG though – If they put it up even more, that will be saying to me that they expect things to get pretty bad.

  17. Please any FHOG can you tell me what the banks are offering you (to add) on top of your home loan?

    FHOG, when they buy do they put on there loan a new car, renovation like new carpet, paint, new furniture and white goods as this would add to the loan?

    I have heard that financial advice has told people to borrow (from home loan) more like $20 000 to put into the stock market, and then borrow on the stocks (margin lend) to buy more stock?
    So it seems that property (domestic homes) is linked in more ways to the stock market than we know?

  18. I agree with you all that the housing market on the whole is overpriced and is set for a fall (it’s already happening and selling now constitutes damage control), but property as such is still a worthwhile investment in certain respects, such as farming land in areas with good rain fall (rare as that has become), or housing in areas where employment is expected to remain intact. The point is that if the price vs. earnings is acceptable, then, like any other investment, it’s a worthwhile risk – not a great deal different from others. The thing that is good about property is that it is a more direct and easily understood investment for many people.

    Although I do understand the reason for the advice to buy gold, the problem with gold is that it cannot be used to conduct a productive industry – it can only be hoarded. It is a purely speculative investment, like shares have become. As such I don’t like it very much, but it is better than cash.

    Therefore, in the short to medium term, by my reasoning, any massive excess in cash should be converted to gold or some other tangible thing (…any better suggestions?) until such a time that real estate (rural, residential or commercial) and share prices reach the sweet spot where earnings are adequate to offset inflation and also produce a reasonable return over and above that.

  19. rick e – Can’t specifically answer your question re FHOG but it is my general take on things that the banks have recently gotten considerably more conservative re lending on housing – So you probably should ask a bank direct. (But Google “LVR bank” for some general info possibly?)

    Re advice to borrow against one’s home equity and leverage to buy stocks (if that is actually what you mean), that sounds suspiciously like what a mob called Storm Financial were advising?
    If so, it works very nicely in rising stock markets apparently but results in people going bankrupt in bear markets – Losing the house and all I think? (Google “Storm Financial” for all sorts of recent sad and sorry tales on that lot.) If it is the same game, who knows, maybe you’ll make a killing. Or maybe you’ll get munched big time. But either way it’s the sort of thing one probably wants some very good financial advice on re your risk profile and all sorts of other stuff before deciding to play. But if it is what it sounds like to me, I doubt that a reputable bank would want to know about it given the recent debacle with Storm Financial???

  20. I have some other ABS stats for you and you can see where mine came from:
    March 18, 2009 Embargoed: 11.30 am (AEDT) 14/2009 Australia experiences high population growth: ABS
    Australia is continuing to record high population growth, according to figures released today by the Australian Bureau of Statistics (ABS).
    A total population growth rate of 1.8% was recorded for the year ending September 2008, up from the 1.2% recorded five years ago. The last time Australia experienced higher growth rates was in the 50’s and 60’s (above 2%) as a result of post war migration and high birth rates.

    As at 30 September 2008, Australia’s population had grown to 21,542,000 an increase of 389,000 people over the previous year. Australia’s net overseas migration contributed to more than half of this growth at 61% or 235,900 people. Natural increase (the excess of births over deaths) contributed 153,400 (39%).

  21. Thanks for the article Dan. It’s slowly getting easier to be a bear.

  22. Melissa Ketchell’s column / blog had some interesting stats – not sure where they came from – but they point to the US having practically the same ‘housing relative to population’: “Hometrack reckons the level of housing relative to population is at 2.51 similar to other anglo economies including New Zealand (2.51), Canada (2.54), Great Britain (2.35) and the USA (2.34). ”
    That being the case, how come the US has an ‘oversupply’ and AUS has an ‘undersupply’??

  23. Dan – Your sentiments are very similar to mine. Except I probably still prefer cash to gold (AUD cash anyway – As sad as the Peso of the Pacific sometimes seems) – For a few reasons which I’ll list at the end in case you have no interest in reading them.
    It also sounds like you might be in a similar position of sitting on a bit of cash as well? If so, I can certainly say it’s a challenging but still fundamentally better problem than the alternative.
    For mine, as a long term owner of some IP with development potential, I think I’m going to have to burn some cash developing that potential to maximise my rental return – Even though it runs against the grain a lot.
    Apart from that, all I can suggest is the flip side to something I wrote to a mate who asked my thoughts on buying IP a few months back and I said “Risky – I’d wait a while” – Which is “Keep an eye on inflation – If that looks like taking off then it just may become a case of buy something/anything almost (bullion/stocks/property) now!”
    Not much of a game plan I know and if I get it refined a bit I’ll try to remember to post something about it.
    Of course if one was a very experienced and skilled stock market trader, that could be tempting. But I’m not. So it isn’t.
    Re Gold versus AUD cash:
    * Gold is now a purely speculative investment as you say
    * It is overpriced; given production costs anyway – If you were in at AUD 800 per ounce that’s fine but at AUD 1200 to 1500 per ounce where its been recently one has to have few reservations
    * The Mom and Pop bread and butter type Indian buyers don’t want it at current prices
    * The IMF are getting set to dump quite a few tonnes of it apparently
    * It is actually a pretty small global market so price moves can be pretty violent
    * Anything I can read says you really should take physical possession of the stuff
    * Oz hasn’t shown any sign of jumping on the full on QE bandwagon (yet that I know of – BUT PLEASE CORRECT ME IF YOU THINK I’M WRONG)

  24. Ned S – Australian cash is worth something currently, but the way (and the volume) of money creation around the world at the moment makes me wary trusting ANY currency. I think the happiest people on the planet at the moment are those who have a bit of cash (not heaps, just enough), no debts and a safe job. Getting rid of debt should be every mortgaged person’s principle task in life at the moment IMHO. Inflation and high interest rates are around the corner – at least in the items that people are forced to spend money on (like food and clothing).

    You could be right about gold, but what leaves nothing as a safe haven, really.

    To be honest though I’m not looking at this situation from the perspective of making a profit but preventing the scheisters in government and the world bankers from robbing us blind.

  25. David V – I for one will certainly try to have a good look/think through the stats you give – Appreciated – Thank you.

  26. Dan – There is no safe haven at this time that I can see. Because the governments of the developed Western economies lost control of their economies. And have not re-established that control – Leastways not in any fashion where they are at all sure just how their attempted fixes are eventually going to work themselves out I suspect.
    Plus some major global responses vary – The US (which is still the world’s global currency reserve holder – whether they or anyone else really like it or not) and Japan and the UK have gone for QE. While Europe which is the world’s largest single currency economy has not.
    Within that context, the biggest thing that Australia seems to have going for it is that China is debt free/cash rich and quite motivated to continue growing (even by promoting domestic consumption if absolutely necessary). And Oz is China’s quarry – So it could actually be way worse (from the Oz perspective anyway.)
    Indeed if Oz hadn’t actually fallen into that housing boom trap trap over the past decade we’d probably actually be in pretty good shape ourselves even? But no use crying over spilled milk as they say.
    While I also incline to the view that the deflationary risk has lessened very considerably, that certainly doesn’t mean anything is going to reflate especially dramatically or reliably anytime soon.
    The likelihood of hitting one of those murderously long stagflation things is probably about my best guess just now. I’ve not gone through one of those with any assets to worry about. But will try to have a real good chat to my accountant who has about 10 years on me and whom I know has experienced one. And is both a conservative and pretty smart man. And also a very nice man (that being more important than lots of people give it credit for I suspect?) And who was out of stocks in March 2008 and into cash. Again, I’ll try to remember to post what he tells me – In a week or so maybe?
    But in the interim; My take: Now is a very good time to have, in order of priority: 1) a stable job, 2) no non-accomodation related debt, and 3) no accomodation related debt.
    Having mortgage free accomodation (be it EVER so humble) is a decided advantage. But still not as important as the stable job thing if push should actually come to shove. Any other debt is a dead loss – One MUST lose it.
    A few dollars in the bank plus any truly tradeable other assets one holds are a bonus – So I’m not anti-gold – I’m just not at very pro-gold at current prices and might just personally incline to platinum if I had time to research it a bit more??? But I don’t so I won’t. Next week maybe? (Rhodium??? – I recall that as being VERY costly and crashing very big time – Wonder what it’s used for – Perhaps not?)
    A final thought and I’ll get out of your hair (because I really don’t know much at all – Except when it comes to SE QLD property where I’d back my understanding against the majority; But even there I’ve been quite wrong on occassion): A person needs to remain vigilent. If a person is not spending about an hour a day keeping up to date with this mess as best they can, then they are probably doing themselves a bit of a dis-service. But while it seems to be moving at the speed to light in some ways; it is also moving WAY slower than treacle in some of the most basic and fundamental ones (eg resolving the deflationary question as opposed to the inflationary one – deflation still actually reigns – but the current majority view is that it won’t eventually.) So don’t be rushed into anything. (I know I’m inclined to panic.) But there shouldn’t be a need for panic if one is remaining vigilent and major world governments don’t truly lose the plot. Which probably isn’t that likely now that they’ve finally been woken up from a decade or so of slumber. They’ve had a huge fright – Maybe even almost as bad as ours? And it is a fear they are continuing to live with. (I can relate!)
    Everyone enjoys a freebie. But it is probably really going to eventually be back to some really very hard grinding investment basics for at least a decade maybe.
    Of course Israel could decide to bomb an Iranian nuclear facility tomorrow – And that will most likely cause a temporary spike in some asset prices for 6 weeks or so until NATO says you’ve both been very naughty often enough and they both sort of mumble some international platitudes while saying at home – Objective achieved.
    Which is one other reason to hold gold – To sell it when such things happen (as they periodically will) but buy it back after they’ve calmed down in preparation for selling the next time. Either that or just as a long term savings vehicle – Providing it is bought at the right price.
    I’ll try to remember to post my accountant’s thoughts in a week or so.

  27. Ned s – Yes, Pete’s comment summarizes things well. But I think your comment about potential war is the most important ‘what if’ question that needs to be considered. It’s the worst case scenario, in a sense. Thanks for your well thought through commentary, and also thanks to you Mr. Denning for your great articles.

  28. “Chinese banks the #1 global subprime problem”

    The China dream will eventually turn into a nightmare for China and Australia.

    * John Hewson, China’s long march, AFR, October 18, 2002, p.82:

    … journalist and Sino expert Joe Studwell … encapsulated in his book, The China Dream, which is subtitled The Elusive Quest for the Greatest Untapped market on Earth. As its cover proclaims, “For 700 years, ever since the time of Marco Polo, the world has seen China as an unrivalled opportunity for expanding trade. Century after century, businessmen have invested time and resources only to have the economy crash and their dreams turn to dust. Yet they always return.”

    Studwell believes “the economic foundations of contemporary China have been laid on sand and constructed from the kind of hubris that drove the Soviet Union in the 1950″.

    * Stephen S. Roach, Protectionist Threats: Then and Now,, January 26, 2007:

    … a surprisingly small proportion of the goods shipped from China to the US reflect value added inside of China. Academic research by Stanford Professor Laurence Lau has, in fact, shown that only about 20% of Chinese exports to the US reflect domestic Chinese content; the rest consists of components and parts from China’s trading partners — predominantly those elsewhere in Asia (see Lau’s testimony before the US Congressional Executive Commission on China, “Is China Playing by the Rules?” September 2003). It turns out that China is more of an assembler than a manufacturer. While it may send a disproportionate share of its finished goods exports to the United States, that’s more a reflection of China being the final point in the assembly line than anything else.

    * Gary Dorsch, “New Bubbles Brewing in Shanghai and Wall Street”,, April 14, 2009:

    … China’s factory sector is structurally dependent on exports and therefore, highly vulnerable to any downturn in foreign demand, which is beyond Beijing’s control.

    In fact, the spectacular growth of China might not have been possible without the massive expansion of household debt in the United States…

    * Jim Willie, “China & Australia”,, January 16, 2008:

    Some financial analysts call the entire Chinese bank system worse than any subprime problem. At a Wharton forum in 2005, the Citigroup Chairman for their Chinese subsidiary assessed, “The four major state owned banks in China are technically insolvent. They have weak governance, bureaucratic cultures, and staggering levels of non-performing loans.” In 24 months since its successful $22 billion Initial Public Offering, the largest IPO in history, ICBC bank has a market capitalization higher than Citigroup ($120 billion). Chinese major banks have an estimated 40% to 60% non-performing loans on their books, earning a Moodys ‘E+’ debt rating, near the bottom of barrel. Their exposure to US subprime slime loans is a mere $13.5 billion, according to Moodys. The state owned enterprises provide funding massive projects for infrastructure and factories, compiling 65% of loan volume but accounting only for 25% of the national gross domestic economy. Their banks suffer from chronic corruption, lack of qualified staff, and credit management problems. Regardless, many Western firms pitch in for investment stakes, viewed as options on Chinese growth. Their leaders hope to grow their way out of any significant ball & chain debt problems. ICBC grew earnings by 62%, and the Bank of China grew earnings by 52%, each in the first half of 2007. A pattern is seen of papering over non-performing loans (NPL) using equity stakes taken by foreigners. Although Chinese banks such as ICBC claim the NPL ratio has fallen from 34% to 4%, Moodys points out how ledger item reshuffling is their answer, as they merely mosey NPL loans to the ‘Special Mention’ column in a shell game akin to US shady accounting.

    Chinese credit growth in the first eight months of 2007 matched the entire 2006 year. Loans to the Chinese private sector and non-financial government enterprises run at 160% of Chinese GDP, which is kind of big. If a recession hits China, their banking system could enter a downward spiral with momentum. Nicholas Vardy of The Global Guru said, “A back-of-the-envelope calculation shows that much of China’s $1.3 trillion in reserves could be eaten up by banking bailouts.” Experts believe China will require another 15 to 20 years to mature in its banking system. Vardy calls Chinese banks the #1 global subprime problem.

  29. Dan – My comment re “war” was in relation to any possibly minor and temporary conflict (especially involving an oil producer) potentially making gold ownership a handy tradeable short term thing despite my other personal reservations about it just now.
    Because such conflicts simply do happen periodically – But the broader world survives pretty much unshaken – Gold just happens to become a very useful and tradeable asset in such short term situations is my basic point. (Which I must acknowledge the truth of despite the fact I’m not a huge gold fan – But do still remain open to conversion also if QE looks like it could hit big time.)
    On the broader picture, consider my other statemenent re specifically NOT panicking I think?
    War between any major powers at this time is actually VERY unlikely for MANY reasons, I believe. I have considered it and I just can’t see it happeneing any time soon, if at all – That’s not to say no big fish might not just take a chomp out of a little fish at some point (but that is always on – the US and Iraq – the world lived.)
    But Russia and the US and China are not going to start hurling nukes at each other. Their ecomomies are too closely bound for any of them to actually even seriously contemplate it is the most obvious reason. But even outside of that, the US is simply WAY too militarily powerful for anyone to have a crack at. While if attacked on their home ground the Russians are just about as psychologically tough as they come (ask Napoleon, ask Hitler – No ice cream and Big Mac bloated bunch of Yanks are seriously going to be contemplating messing with them at home even though Russia is no longer a superpower; And who in their right mind would seriously want to take on the Chinese now – A nation of 1.3 billion people that are showing every sign of becoming the next major superpower – And just could get propelled into that position sooner rather than later by any major war – That slumbering giant is waking quick enough already – Be happy, don’t speed the process if you are a potential competitor superpower.)
    Rather, for you, concentrate on your personal basics – The secure job; minimising your debt; trying to get a few other assets in your kit that you don’t feel are TOO risky (but watching them anyay) while you continue to keep a close watch on inflation.
    I personally suspect Pete’s punt re oil is probably quite reasonable. But also know that I have no personal stomach for the risk of stocks at this time based on my own personal circumstances. But you are not me. So all I can suggest is to keep working on the basics while remaining vigilant and be willing to move in whatever way might suit all of your life circumstances.

  30. ABS stats say HOUSING SURPLUS in Australia – See below:
    Well maybe; Make up your own mind – But here’s some numbers:
    David V – I can’t get my post through – Maybe it’s too long? So I’ll try she “short” version, minus the ABS links (although I do refrence them) – Sincere apologies:
    => Total population growth: 389,000 people in 2008 (ie 235,900 net immigrants plus net 153,400 excess of births over deaths)
    => 33,546 new dwellings projected for December Qtr 2008 (which would be about 134,000 in a year – providing building does proceed as predicted – a wildcard in the deck)
    I really wanted to find some stats on average number of bedrooms in NEW dwellings but had no joy (the figure for existing dwellings was 3.1 bedrooms per dwelling in 2005-2006 out of interest) – But either way, I eyeballed the sizes for new dwellings (2006-2007):
    => Average Floor Area of New Residential Dwellings, Australia (2006-2007) = 212.1 square metres (it says this area excludes “unenclosed verandahs, carports etc” but it would include enclosed garages I’d guess?) But either way that definitely sounds to me like 3 bedrooms per new dwelling – If not more? (These are big dwellings – Your more “basic” 3 bedroom + study + Lounge + Dining + Kitchen + Bathroom + WC + Ensuite + Laundry + 2 car garage but without a rumpus runs at about 150 to 160 square metres) – But I’ll use 3.
    Crunching the numbers:
    Assuming all new people (389,000) have to be accommodated in new dwellings to be built (134,000), one can calculate that there will be 2.9 people per dwelling (ie 389,000/134,000). And if the new dwellings have 3 bedrooms each on average, there would not appear to be any problem.
    But there are a few other things to consider:
    Not all of these new 389,000 people will go into new dwellings. 153,400 of them are births in excess of deaths rather than immigrants. And as it is quite possible that Australians still have significant spare housing capacity in their existing dwellings (they surely did in 2005-2006 – see below), it is probable that less rather than more of those births in excess of deaths will have to be accommodated through the building of new dwellings. See ABS figures under the heading “HOUSING UTILISATION” where the sentence “In 2005-06, most households enjoyed relatively spacious accommodation” pretty much told the story:
    The link is also interesting in that it also contains an internationally accepted standard re “overcrowding” – Canadian – to compare against.
    Another thing to consider is that there were 137,900 deaths recorded in Australia in 2007 (again, the latest figure I could find):
    Some of those deaths freed up some housing. I don’t feel to speculate on how many? But some of them surely did.
    And we also now know that some of last year’s 235,900 net immigrants won’t be coming as the Rudd government recently took building and manufacturing off the critical skills shortage list.
    And we do know that for one reason or other there are also currently unoccupied dwellings in Australia.
    Admittedly, some of the numbers I’ve had to use are a bit out of date. (Apologies – But I did use the most up to date stuff I could find.)
    And one could possibly argue that in the last few years the average number of bedrooms in new Australian dwellings could have dropped a lot. But even if any such drop was as drastic a drop as from 3 to 2.5 (which I’d doubt very much?), with 2.9 new people per new 2.5 bedroom dwelling we still may very well not be in breach of that Canadian overcrowding standard? (Even if we did have to put all of the new people into new dwellings – Which we won’t.)
    In fact the more I look at it the whole housing shortage argument looks like a farce! But put more kindly, having looked at the numbers as best I can, I’m having big problems seeing a housing shortage reflected in them. In fact, it just could be a Housing Surplus?
    Has someone in the ABS done some sort of similar calc recently using up to date numbers? And might their thoughts on the matter be contributing to any of the recent policy changes in relation to housing? One would have to assume there is a reasonable chance of it I’d say.
    If anyone can find some more recent numbers or any numbers at all that do actually say “Housing Shortage” I’d truly appreciate hearing them?
    One possible weakness in my half baked attempt to play statistician that I can see is that somewhat less than that 134,000 new dwellings might get built. But if so, my guess is that it will be because Australians collectively have decided they really can live without them for all sorts of reasons just at this time thanks.
    Those of you who can see others, please let me know. In the meantime I’m going to email a copy of this post to a real estate agent I know who sent me a RE Industry spiel on the Housing Shortage a few months back. And have a quiet think about whether I’m confident enough in it (or motivated enough) to send it to a few newspapers and politicians.
    Cheers to all!

  31. Here’s the ABS links – I’ve had to bracket them to get them though?
    => Total population growth: 389,000 people in a year (ie 235,900 net immigrants plus net 153,400 excess of births over deaths)
    => 33,546 new dwellings (which would be about 134,000 in a year – providing building does proceed as predicted – a wildcard in the deck)
    New dwelling sizes (2006-2007) of 212 square meters indicates average of 3 bedrooms per dwelling:
    Discussion of “HOUSING UTILISATION” re 2005-06
    137,900 deaths recorded in Australia in 2007

  32. You’ve posted a whole lot of baloney there Ned S. You set out to prove there is no shortage and you sought-out and twisted figures to try and prove your point. You make a big deal about how many extra bedrooms there are. Great! Can you have one delivered to me? You talk about local population growth as not needing extra houses because the old people who die will free-up houses and the babies born don’t need houses. Clever deception there. You have forgotten that babies born 20-30 years ago have aged and they are the ones needing the extra houses. By your method if we held population steady for long enough then all the houses would become free. Talk about a farce. You don’t need to perform fancy calculations to see the shortage. Just grow up in Sydney and try to buy decent housing. There’s your shortage.

  33. David V – Well that was a blistering response! After digging through it to see what might have brought it on I guess I’ve got reason to strongly suspect that you are maybe in the 20 to 30 year old age bracket, live in Sydney and are experiencing difficulty buying (or perhaps even renting) accomodation there that is affordable and/or suitable given your personal circumstances.
    That is a rather different question to the one I attempted to get specific answer to – Namely whether the numbers of “new” people in Australia over the next 12 months might reasonably be expected to be adequately accommodated in the numbers of projected “new” dwellings based on a projection of how many bedrooms each such new dwelling might contain. (The fact that I went down that track was a direct result of the fact that the ABS figures you quoted in what I (rightly or wrongly) took to be support of your previously stated opinion that there is a housing shortage in Australia were specifically to do with these “new” people.) And I then worked outward from there and included some specific thoughts/ABS numbers that seemed relevant to a consideration of the broader question of whether there is a housing shortage in Australia or not.
    Irrespective, I think we might call this dicussion “quits” if you don’t mind though, as I simply don’t see value in giving anybody unnecessary opportunity to accuse me of the sorts of things you quite unreasonably and unjustly do in your last response.

  34. Lack of bank credit will slow house price rises even if immigration increases population. But as mortgages are paid off, through increased savings, credit will loosen and the demand for housing will re assert itself. Many migrants have the capital to buy a house without financing. They come from developed economies and have been economically active while the bubble expanded. They still have substantial equity even after recent 20% falls in price. Australian house prices internationally are fair to low given the higher areas and plot sizes. Sydney excepted! But wages in Oz are also low, comparatively. This will all have been researched and the net effect of skilled migration is an increase in wealth for Australia. Persons from poorer countries save more and slowly adopt the expectations of their new neighbours. There have been effects of the bubbles here and these are being unwound, but 2Bn people want coal, iron and food. We are only 22Mn. While I appreciate Dan’s arguments and agree with them, the bubbles did take a longer than expected time to burst. It is possible that we will notice a pause in price rises that lasts for a decade as another person suggested. All the pedicure parlours will disappear but the owners and workers will take on other jobs. I often say we are a colony, where we are engaged in building a continent. Look at the USA 200 years ago and see us at a similar stage. We do not allow unrestricted immigration. There are no waves of huddled humanity to drive the previous wave out of employment. We have the benefit of US experience and wish to avoid their obvious mistakes. We have not had to face off other colonial powers on this island. We do not need the manpower for aggressive armies to take Texas or California. Indonesians can sleep sound in their beds, propaganda notwithstanding. We do not need to create these bubbles locally to introduce a New World Order. We do not need to create social or racial or religious division.
    Incidentally, vacant houses do not qualify for claiming interest against income. There needs to be income for the interest to be deducted. Maybe the ATO needs to tighten up on this?

    Pat Donnelly
    April 22, 2009
  35. Pat:
    I agree that bubbles take time to pop (deflate) and the Gov. intervention is making things worse, by making things slower (which means slower recovery as we pay off the debt or fight the inflation).

    You said:
    “There have been effects of the bubbles here and these are being unwound, but 2Bn people want coal, iron and food.”

    No they don’t.

    “Look at the USA 200 years ago and see us at a similar stage.”

    I wish I could share your optimism. We lack one very very important feature for that: Plenty of available fresh water. Ask any farmer.


Leave a Reply

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to