Why Higher Australian House Prices, Lead to Higher Social Tensions

Housing Market

This morning QANTAS announced a $252 million loss for the six months to 31 December and said it would shed 5,000 jobs over the next few years as it tries to cut costs to regain profitability.

Alan Joyce has one of the toughest corporate gigs in Australia. Airlines, especially ones operating in Australia, are high cost…and capital intensive. You constantly need to invest in fleet capacity, and your competitors are often foreign owned entities with access to cheap fuel and a preference for gaining market share over profitability.

QANTAS hasn’t paid a dividend since 2009, yet it still struggles to generate positive cashflow after taking into account its investment needs. Its only option is to keep cutting costs. So another 5,000 jobs will soon evaporate from the Aussie economy. That should be good for Australian house prices

Meanwhile, residential construction is not responding to higher house prices, as we’re sure the RBA thought it would. Data released yesterday by the Australian Bureau of statistics showed that the total value of construction work performed over the December quarter fell by 1% on a seasonally adjusted basis.

The value of residential construction was down 1.7% over the quarter and 1% over the year, indicating that the RBA’s significant rate cuts have done bugger-all to boost housing construction. Not that the RBA will admit to such helplessness. They probably think they just need to cut rates further.

It just goes to show there are deep structural flaws in the Australian housing market, both on the supply and the demand side. Gross supply side constraints and constant stimulation on the demand side have led to a market that no longer responds to simple economic signals.

Higher prices should lead to more supply. But not in Australia. They just lead to higher prices…which eventually leads to rising social tensions as cashed-up baby boomers leverage past property gains to add to their investment portfolios, outbidding youngsters in the process.

Oh well, just another result of easy money taken to extremes.


Greg Canavan+
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Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely 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. For more on Greg go here.

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2 Comments on "Why Higher Australian House Prices, Lead to Higher Social Tensions"

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2 years 7 months ago

People are insane paying for houses that you can pick up in the US for 5-10 times less.

Housing boom advocates say that the Australian economy is so amazing and everyone lives close to the beach so the that justifies a price 5-10 times more, even though wages are only 1.5-2 times higher than most G20 countries.

If this bubble doesn’t burst in the next 2-3 years I am moving to Thailand, I can retire at 30. Screw those cashed up baby-boomers, they are ignorant and think the only way is up. That’s how the GFC started.

2 years 7 months ago

Still haven’t got it. Australians are not driving up house prices, it’s the unrestricted foreign buying that’s responsible. Especially the Chinese buying.

Do take a walk at street level in the better suburbs if the big cities, and better still, have some conversation with real estate agents

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