There are many things to accuse the big banks of. But pushing Australians into buying residential property isn’t exactly up there in the long list of their sins, despite last night’s Four Corners expose of the “powder keg” that apparently is the Australian property market.
Such stories, which are normally to be found near the top of the SMH site because they represent the ideal Sydney combination of talking about property prices and speculating about disaster, normally require at least one of two things. They need a foreign investment analyst who, from a comfortable office in London, or ensconced in a Manhattan skyscraper, declares that the Australian property market is wildly overpriced compared to other countries and is a bubble that will burst any moment. Alternatively, they need a perma-bear economist who has predicted 20 of the last three recessions and is happy to continue to insist economic disaster is just around the corner no matter how silly they look.
Steve Keen being, presumably, unavailable, Gerard Minack filled in that role last night for the ABC and gave them the “powder keg” line. Minack loves a good doomsday prediction. Back in 2014, he warned that the fall in mining investment was going to inflict a calamitous cut in growth in Australia. “‘We’re not forecasting a recession, but we’re saying here’s some evidence that the chance of a precipitous fall may be larger than people think,” Minack said back then. In early 2015, Minack said there was a one-third chance of recession that year or shortly after. Early in 2016, Minack claimed a global recession was coming. And in April this year, possibly to celebrate the second anniversary of his prediction of a one-in-three chance of a recession, Minack said there was — guess what — a one-in-three chance of recession this year.
And, of course, Minack will one day be right. After all, Access Economics eventually got it right after predicting the end of the mining boom for much of the 2000s.
A gentleman called Jonathan Tepper filled in the role of the foreign investment analyst for the ABC, predicting from London that we’ll all be rooned. Tepper hasn’t been in the doomsday game quite as long but has been claiming the imminent end of the property bubble since the start of 2016, when he graced a 60 Minutes program on the looming property disaster.
Much of Four Corners focused on mortgage stress and the harrowing stories of households struggling to meet mortgage repayments with stagnant incomes. There was also a heavy focus on Perth, presumably because, due to the end of the mining boom there, property prices have fallen in Western Australia. But the problem with mortgage stress is that there’s no evidence it’s getting any worse while interest rates remain at record lows. According to Roy Morgan polling, mortgage stress is currently close to its lowest levels since 2006. And earlier this year, economist Rod Mattock noted that Australians now have greater equity in their properties. “The proportion of people who have very high exposure to a fall in house prices — those with loan-to-valuation ratios above 90% — has been declining over time,” he concluded. “Once again, the basic picture is one of prudent households, rather than a community of people gambling on house price rises.”
And as the debate around tax concessions for negative gearing and capital gains, land supply and infrastructure provision suggests, the real issue in housing is the way taxpayers are subsidising investors to compete against young people and low-income earners for an overly limited supply of property — a supply that is now being expanded in Sydney and Melbourne courtesy of low interest rates and a massive increase in apartment building. In case you didn’t notice, no one’s been too focused on banks trying to push young people and low-income earners into the property market — they’re quite keen enough by themselves.
Blame the banks for all sorts of things, yes. It’s entirely deserved in areas like financial advice, insurance, retail superannuation and money laundering. But pinning a non-existent property bubble on them doesn’t wash.
Contrary to what you think BK the mining boom ended by 2006 when the price of nickel dropped by 80% in a few weeks and all but a few mines in WA closed. Iron ore kept some sectors going, but unlike you I know people who were there. Norils nickel closed every mine it had in WA, BHP’s Ravensthorpe barely began and has not done anything much since. If you think the banks have lent sensibly, you are in an alternate reality given interest rates must rise.
Well the underlying point (if you were paying attention) wasn’t really about any pissy little ‘property market’ bubble bursting, was it, BK. It was about the way the banks are now so operationally implicated and entwined in the whole over-leveraged Ponzi fiasco that it won’t be the ‘property bubble’ that pops, will it. The de facto taxpayer guarantee on the banks will effectively drive two or three generations + of Australians into sustained recession, in the way that is/has happened elsewhere. I’d go so far as to say that what the program made abundantly clear has been the key role the banks have played in blowing Australia’s greatest – ever – boom, directing its fruits into a big fat lazy stream of hot piss up our brick veneer walls, rather than fertilising a radically restructured third millennium economy.
But you know us hyperbolists: all chicken little hyperventilation…
Property bubble bursting? Sooner/later/never? That’s not the story now, is it, that’s just a symptomatic historical footnote. But…you know. Whatevs. Like, I’m sure all those metrics – income/debt ratios, bank mortgage exposure percentages, the WA housing ‘value’ retraces (50, 60%…back to 2nd Millennium numbers in places)…will aggregate ’emselves out just super. Just super duper. Yes, I’m sure you’ll never need that parachute to materialise, BK, since your bus full of blinkered high-paid economists/bankers/policy experts will never hit the bottom of that cliff…it’ll be the rest of us that do that, man.
Blaming the banks is like blaming the wind. It’s useless. Banks are simply responding logically to the threefold-fact that land can be privately owned, God isn’t creating any more land, and the world’s population – including Australia’s – keeps growing. (Japan illustrates this in reverse: not accepting of immigration, as its population has declined over recent decades so have its residential property prices continuously declined.) Until one of these three foundational facts changes, bleating about banks lending against property will just be pissing in the wind.
Yes, macro, true enough. And I’d have no problem with what the banks have done if I thought there was a fair chance one or more of the big four would go bust, or even just they/their shareholders take a serious belt, when the fruits of their commercial recklessness ripen past the point of rotting. But they won’t. It will be the taxpayer – and worst of all, especially the taxpayer who has not joined in the over-leveraging property incontinence – who carries the economy through the years of recession that are coming. When? Dunno. How many? Dunno. But long recession is guaranteed, I think of the kind that sees nations slip from first world to second, never really to catch up, as the global world sails on. But I’m one of BK’s gloom merchants.
The most illuminating case study in 4C was of that young couple on a combined income of $135k who had accumulated 5 properties in 7 years (with two more pending approval). By their (‘conservative’) numbers they reckon they have a debt of $1.2M on a portfolio realisable at $1.5M. Well, maybe; maybe not. The point is they cheerfully aim to accumulate 20 properties in total (‘to begin with’). The fundamental commercial methodology is, quite simply, to keep buying and buying and buying as quickly as you can expand/service your debt. That, in a nutshell, has been the property game, certainly since 99. The underlying faith is, as you put it, in the god-macro supply-demand thing (the loooong view ). Factors like debt/income ratio, or rental yields, or even (until recently) basics like deposit/lending ratio…or anything that might tether that young couple to fiscal reality (in their lifetime, even) have been lip-serviced at best. This is, legitimately, the banks’ fault. Can we blame them? I agree with you: pointless. I guess they are being smart, even. Because ultimately they know that the taxpayer guarantee is a guarantee of one thing only: moral hazard.
A property bust? A crash? A bubble? It doesn’t really matter to them. Whether or not that couple – and the tens and hundreds of thousands of other investors, all similarly over-leveraged – limp over the equity hump in the next decade, ie where exactly the property investment sector crash/retrace lays down its go-broke/survive/thrive cohort-bands…is neither here nor there. What matters is the wider strategic impact of skewing our entire domestic economy down that property investment moral hazard path – led by the banks and bipartisan tax policy madness. No matter how bad the property downturn/crash – maybe that couple makes it, maybe they don’t – the big banks who directed the cheap overseas cash at it won’t be allowed to crash. (But at about 60% weighted into property, you’d reckon at least one might, right…? Nooo…moral hazard…). Nope, the taxpayer will catch them all. That means that – perhaps – that young couple, who frankly have no fucking business whatsoever being able to accumulate seven properties in seven years on $135k, may well end up with their 20 properties, anyway. Or 15. Or 40. Or the investor just up in the next equity cohort band will. It’s not the point.
The point is it’s all of it based on access to ‘secured’ debt that is a) absurdly unsecured (except by us taxpayers) and b) sickeningly unproductive (except for the investor, and an ever-diminishing facilitator cohort in the housing sector). And it means that me the taxpayer haven’t/won’t be able to spend my money on better investments, productive ones, growth ones. I’ll be paying for that couple’s property splurge.
This isn’t a ‘property bubble’, it’s not even a Ponzi scheme. (At least both of those are optional). It’s someone else binging on your fucking credit card. It’s your big sister running riot completely unchecked with the Amex she got for her 18th birthday, with dad as guarantor. And so the whole fucking household is not only going to have to pay off her debt, with none of us having a shred of spending money while we do…but also, big sis may well get to keep what she bought anyway, and eventually she’ll end up richer than any of us.
CRash or not, that young couple may well retire with their 20 houses in a decade. They might drag themselves over the hump and hang on. No doubt they’ll work their tits off and scrimp like hell on the avo toast. But even if they do it will still have essentially been Australia who will have paid for their fiscally incongruous portfolio, not them.
Cheers.
Alright. Let’s plough through the key bits.
“It will be the taxpayer – and worst of all, especially the taxpayer who has not joined in the over-leveraging property incontinence – who carries the economy through the years of recession that are coming.” – Of course average taxpayers are ‘joined in’. The banks comprise a huge proportion of the ASX by value and pay massive dividends, so anyone with a super account (i.e. everyone) is beneficially implicated. Moreover, the banks pay the lion’s share of company tax in Australia (much closer to the 30% rate than any others), without which the average taxpayer would have to pay a hell of a lot more tax.
“What matters is the wider strategic impact of skewing our entire domestic economy down that property investment moral hazard path – led by the banks and bipartisan tax policy madness.” Ah! So it’s not just the banks after all, it’s ALSO our national tax system AND our two-party political system to blame. Now we’re beginning to make at least some logical progress. Yes, there are a hell of a lot of actors aside from banks involved in the property sector – also including mortgage brokers, lawyers, accountants, property management and sales people, quantity surveyors, land surveyors, architects, engineers, builders, tradies, furniture, electronic and white goods manufacturers and retailers, . . . . Jesus, need I go on?
“The point is it’s all of it based on access to ‘secured’ debt that is a) absurdly unsecured (except by us taxpayers) and b) sickeningly unproductive (except for the investor, and an ever-diminishing facilitator cohort in the housing sector).” Well, as Ross Gittens once deftly observed, just see how productive you are after a night of sleeping on a park bench. It’s economic poppycock to claim that housing (whoever owns it) is an ‘unproductive investment’. After food, it’s THE fundamental precondition for human productivity. And, as for property being ‘unsecure’ debt? Well, even you agree that ‘in the macro’ it isn’t. In the micro, of course, there’s risk. But that’s why banks make the big bucks, just like any other business that goes out there and plays the game of capitalism with consistent success. They play a spread of micro risks for an overall macro win over long time spans. National economies are no different. And they need banks.
But reading your earnest diatribe it’s clear that your real grievance with banks is that they have an implicit social guarantee: by virtue of their dominance over Western economies; that they alone can privatise profits and yet socialise losses. And with this unfair power, you imply, they nefariously seduce young couples “who frankly have no fucking business whatsoever being able to accumulate seven properties in seven years on $135k” into planting leveraged timebombs throughout the economy. Except, of course, unless there’s a law against it, that young couple has every business accumulating anything they can fucking well get away with. Same as each and every bank, as a matter of fact.
Big banks aren’t the problem. Nor are major status-quo-preserving political parties, little Jack and Jill investors, or our pro-property investment skewing tax legislation. These are just the parts. The problem is the whole. There’s nothing radical or even remotely progressive about screaming “the bastard banks done it!” In selectively blaming one or a few actors for an entire system, it relieves all actors for complicity in that system’s continuity. It’s an intellectual cop out at best, and cheap sentimentalist virtue signalling at worst.
Cheery hoo.
Well….turns out we are in furious agreement, Will. Seriously. I wasn’t actually screaming ‘the banks are bastards’ at all. (I was, but not really…not e clusively). Nor was I dissing Jack and Jill (or only a bit, out of pure spite), the ALP/LNP (oh OK, yeah them too), nor even our tax leg in isolation (vile, fiscally insane as it is…ok, sure, slagging that)…alright, maybe I was screeching at the ‘whole’, too. (It’s what I do mate…I’m a misanthrope, I hate everyone, most of all myself.) But again: in essence we agree. It’s the sum of the parts, sure it is. But the sum has only been truly cockeyed for a couple of (crucial) decades, as a result of a (relatively) few wholly avoidable/amiorable cockeyed policy missteps, State and corporate/banks, plus also the usual massed individual greed and stupidity.
My/the real point, though? Forget the housing sector. Bubbles, busts, booms…it’s all a footnote. What matters is where our once-in-a-national-history boom has gone, and in what fiscal and structural shape our economic disposition is now in. In Norway, they anted their way cleverly into supreme 3rd millennium position, on all fronts. In contrast in Australia today, so investment-dead-and-match-unfit is our capitalist economy – our miracle economy – that we can’t even muster the capital sector investment guts, grunt and nouse to keep our outside dunny lights on. My argument isn’t with capitalism, banks, economics or etc. it’s with the failure to do it properly.
Did you see that chinless twat who passes for an ANZ CEO on 4C? The dribble-gibletted goose is probably coining $6-8 million a year, and he can’t bring himself to admit Brissenden’s obvious point about regulators: them putting the external brakes on lending = the big four banks have obviously screwed it up. Ten million a year each and these glorified abacus’ can’t even be trusted to keep their own basic lending profiles in sustainable order. Is this not terrifying to any true capitalist? These are our mighty Captains of Investment Steerage, the men with their hugely remunerated hands steadying the pillars of our fiscal future, its shape and sturdiness? No wonder the ‘whole’ joint is shakey. 60% of the big four’s lending firepower tied up in the house price arms race? No wonder everything else is paralysed.
The economic world is passing us by, Will, admiring our big shiny houses, and thanking Christ their ‘whole’ is not as grasshopper stoopid as our ‘whole’. That’s the 4C story. Cheery hoo, indeed.
Cheers, thanks for your time-generous reply.
Sweet
Jack’s courage in contributing his ‘ignition’ . . . and Will’s grace to ‘thrash’ wheat from chaff . . . as with the fourteen todate ‘others’; and let it not be lost, Bernard’s tabling of ‘bubble of discontent’ together . . . My reason for subscribing to Crikey.
If only politicians were to engage with we serfs . . . .
Thanks, Graybul. And of course, Jack. In the same spirit, I suggest the next time someone here floats the idea of letting their Crikey subscription lapse, we (and all else who agree) line up to remind them what we think this idiosyncratic little publication is actually worth to the public sphere of this country. : )
I must have watched a differnent 4 Corners.
The point was that changes in a number of possible factors (interest rates, unemployment, stagnant wages, legislative changes to negative gearing and CGT) could seriously affect the housing market, the banks and the wider economy.
It’s not as if this hasn’t happened before, but I always hear “this time it’s different”.
Minack likened Australians to lobsters in a warming pot. He just happens to be someone wandering by the stove. How can we possibly know if he’s right? And if we’re cooking, who is in a position to turn down the gas?
A minor niggle – if a chap says there is a 1/3 chance of a recession, and there isn’t one, isn’t his “prediction”, qua prediction, a success? But it isn’t really a prediction, it’s a suggestion about how to hedge against contingency.
Banks can be the doyens of avarice, but they can’t force it on people.
On the other hand they could teach premiers (with their fetish for buckets of money) a thing or two …. Go Anna!
They’ve been shadoofing out money like Jethro along the Darling before an election – before someone else had to point out The Birds on the horizon, looking this way, were chickens.
The likes of casualisation of the work-force, fading job security, stagnant wages, dwindling discretionary spending (as money has to go to necessities, like rising power prices), a Chinese chill, house-hold debt, burgeoning mortgages as people stock up on “real estate bargains”, interest rates, Trump in the White House – if anyone of these staves give way the barrel will fall apart.
When it goes tits-up it will make Mr Creosote look like a hiccup ….. I can understand why they don’t want anyone mentioning the “b” word.
Funniest thing I thought about last night’s program was the ANZ’s Shayne Elliott :- going to see a screwed-over customer (the one on the program) ……. how many times is he doing that? And with whom he came to an “undisclosed” agreement?