Australia’s entire economy is built on housing, and operates on a “myth” that we can keep generating wealth by constantly inflating housing prices, argues the head of Australia’s largest super fund.
Paul Schroder, the chief executive of AustralianSuper, has issued a stark warning that our nation must rethink its over-reliance on real estate.
He said he’s calling out the “central truth” that Australia spends way too much on housing and “not anywhere near enough” on productive investment.
Indeed i’ve been saying that since the 1990s and yet here we are.
He said many Australians say they want improved housing affordability and lower house prices but it’s “nonsense” to expect that those things will occur under our current policy settings, because the “entire construct of the Australian economy” is embedded in the housing mortgage book.
Unless there’s a volte-face by voters towards The Greens, everything remains the same BUT gets worse
“A dwelling-house, as such, contributes nothing to the revenue of its inhabitants”. - Adam Smith - The Wealth of Nations
>This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments - Adam Smith
You’d have to fix this really slowly tho right? Like however many decades it took for housing to inflate to this point, you’d basically have to spend that long deflating it?
Probably that two to three decade time period, but actually deflating is risky.
I like Alan Kohler’s idea that you’d spend the time equalising housing as an asset in the market. So slowly backing off the incentives on housing as an investment in the market, while increasing supply, and using the normal run of inflation in the economy to let other activities in the economy catch up in price.
Yeah, cool. I’ll look into Kohlers idea further. Seems sensible and acheivable?* (*except for the fact it’s probably a political mine field and voters aren’t great at evaluating long term plans).
This is probably his most focused work on Australian housing. I think it was turned into a book as well.
Alan Kohler, The Great Divide Australia’s Housing Mess and How to Fix It - Quarterly Essay
His podcast is good as well, he and Stephen Mayne tend to have some interesting conversations. Thompson, the other host is a great case study in everything wrong with commercial media journalists.
Neat! Thank you
When a long term trend of house price deflation occurs investors will flee the market, resulting in a massive crash.
It is basically unavoidable. So the number must go up.
This is only a problem for those who own numerous investment properties. Those people will survive. It could be bad for anyone struggling to pay a mortgage, because they no longer have the option to sell. We’ll need policy to protect those people, 0 interest maybe. Also sucks for anyone planning to sell and retire on the cash. Everyone else wins big time.
We’ll need policy to protect those people, 0 interest maybe.
Wouldn’t interest naturally take a nosedive in this situation? We’ve just created enormous disincentive to get a loan.
Yeah, I did think about that… Does seem inevitable. I’ll keep pondering haha 😆
I’ve always thought that the older generation should be able to sell their house and transfer the profits across to super without tax penalty (or maybe the standard 15%) . There’s so many investors because there used to be a big push before super to grow your “nest egg”, so understandably that generation should be supported to transition the plan.
I like that. Definitely thinking that any transition would have to support/entice people out of the current paradigm, rather than punish. Yeah, owning a glut of properties is morally shady these days, but the system supported people down that path, so changes to the system would also need to support them out. Tax incentives to shift into super or other investments. But yeh, can’t be massively enticing or attract too many people coz that would also crash things haha
Love the A.Smith quotes. I hate how misrepresented he has been in modern monetarianist and neoliberal arguments. Although maybe his better work was always the Theory of Moral Sentiments. I don’t know though, i never read it.
