Will Incomes Double?

I suppose that It’s *almost* understandable that our government has continued to prime the real estate market with the "first home sellers grant" - driving prices up while the rest of the world went the other way.

They have had a few crises to deal with over the past two years which have distracted them from relatively *minor* issues like housing bubbles.

But now it appears that real recovery is underway so they will need to do something to stop the bubble inflating further.

As most knowledgeable analysts explain, It is simply not sustainable for house prices to remain where they are today - relative to the income and earning potential of Australians.

There are two options - either incomes will need to double or house prices will need to halve. I doubt that either scenario is possible.

A soft landing will mean that house prices will need to stagnate for a decade or more while incomes increase - to ensure that a more sustainable ratio between the two develops over time. This is the Japanese model as opposed to the US or UK model.

So how will they do it? Well there is only one way and that is to ensure that supply exceeds demand over an extended period - while making sure that the price of money remains at a more *normal* level.

So if the federal government and the RBA and the Treasury are serious about fixing this bubble then they will have to do a lot of work to get some greater level of control over the vested interests - including the state governments, the banks, the real estate industry, the media and the various hangers on who make short term gain at the expense of the rest of us.

Can they do it? I personally don’t think they can - because the electoral cycle isn’t long enough to allow the tough choices that need to be made.

So it does look like the vested interests are safe for the moment - they can keep feeding at the trough and inflating the bubble. When it bursts there will be a lot of sh*t hitting the fan - but hey who cares about tomorrow when we can milch the cow today.