Monday, November 2, 2009

Rory Wins - but there will be consequences

I suspect that Steve Keen's error is one of timing and that eventually he will be proven right - house prices could well fall by 40%.

It's just a question of when. And it's also a question of how high they will go in the meantime. Because, the bigger the rise - the harder the fall.

But seriously, why isn't anyone concerned by any of this? Do we really believe that perpetually increasing house prices are a good thing? And if we do (as seems likely) then is anyone thinking about the consequences?

Because there are always unintended consequences - it's really about who they impact and how hard.

Clearly perpetually increasing house prices don't help those who already own houses - because they need to live somewhwere. A high selling price just translates to a higher buying price for the next one. Where is the benefit in that?

But they do impact new entrants to the market - who tend to be the young and/or migrants - who often can't afford the price. Or if they do then their financial situation becomes so stretched that they end up living in poverty for decades - just to get into a house! Where is the benefit in that?

Actually I think I know why this is happening.

This country has a long and chequered history of speculative property development and house building. Just check the list of billionaires, millionaires and other rich people in your community. Odds are that a good percentage of them (probably more than 50%) will be builders and/or developers. Few of them are smart - but they got there by making stuff for $100 and selling it on to you for $200. Just add zero's to get to a different scale.

Now this form of industry and commerce is really the only thing that has been a consistent wealth generator across the nation over the past hundred years. The alternatives are not so good or not so easy to get into.

* The Agriculture and Grazing industries have become too capital intensive.
* Manufacturing has died an un-natural death.
* Mining is owned and run by and for the multi-nationals.
* Technology was killed by the dot com crash.
* Financial services died as a result of the global financial crisis.
* Everything else is hard work and/or low paid.

So the last great money making frontier is *housing* and by the way, house prices are about the only thing still going up - because we as a nation have a serious bias toward this form of investment - and that has produced a lot of "vested interests" all keen to advise you or help you or fund you to get in on the act.

Never mind that it is not very productive to have all your capital sitting in bricks and mortar - or that your job in the other industries is probably precarious - lets put all of our eggs in this one basket - and hope for the best.

Because when it does turn *pear shaped* then "the government" will bail us out - isn't that what they always do?

No comments: