Take your positions, please

A debate is a chance to crunch opposing views. Strong ideas advance and poor ones are discarded. Good. But when participants and audience have already made up their minds, fresh argument goes nowhere.

The Money Institute’s big debate in Sydney on Tuesday asked – Will the Australian Property Market Crash? The audience were dragged over the terrain, beaten mercilessly with graphs and stats, but left the event little wiser.

The first speaker, Tony Hayek, is a successful property investor who made his pile in highly geared buy-to-let in Sydney. His long-time strategy worked for him! He flourished through the GFC, lifted by rising rents, higher house prices and falling interest rates. If looking in the rear-view mirror is the measure of a driver, this man has it won.

“The most predictable economic disaster in Australia’s history.” David Collyer Prosper Australia

I shared my personal circumstances, renting a large and comfortable house in leafy Balwyn for $24,000 a year. But the property is worth $1.6 million, so the owner gets a paltry 1.6 per cent GROSS return. House prices have disconnected from earnings, construction costs and rents. Landless young adults are excluded and loaded up with savings-sapping costs: superannuation (funding both their own retirement and the old age pensions of the baby boomers), that vile tax on education, HECS, and expected to sacrifice two incomes for life to buy a crummy starter home.

I had to put up this horror graph:

Would somebody please tell Senator Barnaby Joyce Australia’s debt problem is consumer debt, not government debt. His deliberate misleading of voters is getting on my nerves.

Amanda Lynch, CEO of the Real Estate Institute of Australia, read carefully from a prepared speech. Her slides were illegible to the audience, but not to me, sitting just below the screen. No, Amanda, you did not prove all is well. No, Amanda, the outcome you predict is not self evident, logical or coherent. Sorry.

“Rising mortgage debt caused the house price bubble; now that debt has peaked, the same force that drove house prices up will drag them down.” Professor Steve Keen

This man is considered a seer and a prophet overseas, but not here. His groundbreaking work on credit and the banking system fills a gaping void in economic theory. He had me and a number of others nodding in agreement throughout. Sadly his excellent debunking of neo-classical economics was lost on most. His presentation is here.

”Many of the tell tale signs of a bubble are not present and just because house prices are overvalued doesn’t guarantee a bust.” Dr Shane Oliver AMP Capital Markets

Dr Oliver oozes reasonableness. He foresees stable house prices for a decade as wages, rents and construction costs catch up. A terrific outcome for homeowners who simply have to make regular payments on their mortgages to achieve nirvana. The fact that stable prices will force 1.25 million negatively geared taxpayers to sell seems lost to him.

“A Ponzi scheme inflated by an unsustainable credit-fuelled boom. The bust has already begun and is unstoppable.” Kris Sayce Money Morning

Quite right. Sayce refers to Hyman Minksy’s definition of the excessive use of credit where the asset must be sold to realize the funds to repay interest and principal, A.K.A. negative gearing. Sayce has put his presentation up here.

“House price crash talk isn’t new and it continues to be more successful than any other topic in generating sensational headlines that scare the living daylights out of people. There are many challenges facing the Australian residential sector, including the need to aid entry level buyers and rental households. The focus should be on what needs to be done to alleviate upward pressure on dwelling prices.” Dr Harley Dale Housing Industry Association

We aren’t building enough houses, Dale says. We need government assistance (subsidy) we need less regulation, oh, and how about some tax breaks too.

In 1888, Marvellous Melbourne, then the second largest city in the British Empire, boomed then bust. Walking the streets of inner Melbourne you will struggle to find a house built between 1889 and 1910. Twenty years of nil construction activity will leave Dale without a job. Sorry.

Was the audience any the wiser? After the debate I was approached by quite a few landless young adults determined to stand aside and allow this unsound monstrosity we call the housing market to collapse under the weight of its own contradictions.

They will buy in when prices match incomes, with a big deposit and the earning capacity to pay down a mortgage quickly. They are the future, Australia.


  1. Bryan Kavanagh09-06-2011

    Nice summary, thanks, David. I find the position of the naysayers extraordinary, especially the HIA’s Harley Dale who ought to know better. A thoroughgoing all-in land tax as argued by Ken Henry would surely keep a lid on speculative land prices and help get young people into their homes, Harley?

  2. Technofreak09-06-2011

    Good write up David, cheers :)
    I’m keeping the benches warm waiting for the crazies to leave the field…all banged up and bleeding.

  3. Barnaby Is Right09-06-2011

    “Would somebody please tell Senator Barnaby Joyce Australia’s debt problem is consumer debt, not government debt. His deliberate misleading of voters is getting on my nerves.”

    May I politely suggest that you look a little beyond the end of your nose?

    Yes, the bigger debt problem in Oz is indeed, consumer debt. No argument.

    But consider the obvious. And there’s a LOT that’s obvious!

    1. Barnaby Joyce can hardly do a great deal about consumer debt. No matter what brilliant policy idea you might devise to reduce consumer debt, BJ as a lone voice can hardly do much about it.

    2. As a Senator on the Economics Committee, he CAN try to raise concerns about government spending / borrowing / debt. Which he DOES.

    3. What is the logical follow-on from the (we agree) greater problem of consumer/household debt?

    Look abroad.

    (a) Housing market collapses – for any number of reasons.

    (b) Banks collapse.

    (c) Government (ie, the TAXPAYER!) is called upon to bail out said banks – for “system stability”, natch.

    So …

    By having the courage to be a (lone) voice opposing wasteful borrowing-and-spendathons by incompetent government, BJ is *at least* trying to position government (ie, the TAXPAYER) to *not* be so catastrophically f****d when the consumer-debt-driven bubble bursts, placing massively increased burden on the “public” purse.

    I suggest that before you go off half-cocked ridiculing the only politician even *trying* to be responsible, you do a bit of research.

    And look beyond the end of your consumer-debt-focussed nose.


  4. Barnaby Is Right09-06-2011

    PS, as a friend of Steve Keen, I am very far from ignorant of the household debt problem.

    That problem is too far gone.

    Most of us should be more worried now about the fact that both “sides” of politics have designs on our superannuation, to pay down that government debt you seem to think is so inconsequential.

    And once again, it is *only* Barnaby who warns us of what’s coming –


  5. David Collyer09-06-2011

    @ Barnaby fan: What absolute CODSWALLOP! Barnaby Joyce is either deliberately misleading the Australian people for narrow political ends or cant read the national accounts. You tell me which it is. Have a look at the graph above. All Aust govt debt is about 7 per cent of GDP. It is TINY!
    We DO have a very serious consumer debt problem, but Joyce rolls it all up and pretends cutting federal debt further is an essential task for responsible government.

    Your characterization of the Gillard government (I don’t love them either) as ‘wasteful borrow and spendathons’ is nonsensical troll gibberish. They have borrowed SFA.

    Your claim to be a friend of Steve keen (implying you are economically aligned) is rubbish. if you keep up this oxygen sapping nonsense I will erase you.

  6. Barnaby Is Right09-06-2011


    Have you taken a look at the government’s own budget forecast numbers for Interest-on-debt?

    2010-11 = $10.5bn
    2011-12 = $11.79bn
    2012-13 = $12.129bn
    2013-14 = $12.193bn

    From memory, there has only *ever* been 2-3 years in Australia’s history – under Howard, during the previous mining boom – when a Federal government managed to return a surplus larger than the annual Interest-on-debt bill that the present government has forecast in its own budget documents.

    To argue that govt debt is “only 7% of GDP” and therefore “tiny” and “SFA”, is to ignore the realities of the forecast Interest-on-debt, the historical precedent clearly indicating there’s no way the government can service the forecast Interest-on-debt without either (a) dramatic increases in taxation, and/or (b) dramatic reductions in spending, and the vulnerability of the government’s fiscal position due to their underwriting of our Big Four banks, who have recently been downgraded by Moody’s, with thinly-veiled warning of downgrades of at least 2 further notches if the goverment guarantee were not in place.

    As for your remarks concerning Steve Keen … perhaps you best ask him. I am a recently-appointed office-bearer in his Centre For Economic Stability.


  7. David Collyer10-06-2011

    I cant be bothered with this. $12 billion in interest in a ~$1,300 billion economy is 0.92% of GDP. Your concerns are misplaced. I am confident SK would agree with me. Show him this exchange.

  8. Indo10-06-2011

    Barnaby, Professor Bill Mitchell will laugh at your assertion that public debt cant be paid back. Australia is sovereign in its currency and has a captive central bank which means the Treasury can issue bonds which the RBA can buy and credit the government accounts to pay those debts. Essentially owing money to itself. If you think this causes inflation , you really do not know much about economics.

    Here is a start

  9. Karl Fitzgerald10-06-2011

    Barnaby’s concerns with public debt suit the neo-lib agenda perfectly – to undermine public revenue raising to such an extent that everything must be privatised a la Greece at present. It also distracts from the public policy that has encouraged so much private debt – the unwillingness to tax land values, allowing land values to be capitalised into the huge bubbles that have brought so many economies to their knees.

    From these comments, it seems like the tactic is working well. When will debtheads become landlovers?

  10. Fellix Frost10-06-2011

    I teach Gen Y uni students and what amazes me is that they have no idea that things weren’t always the way they are. When I tell them that when I was their age it was cheaper to buy than rent they think I am from another planet.

    You are doing an important job educating these young people, because they really DON’T know any different from what they read in the mainstream press, and they don’t have the benefit of experience that X’s and Boomers do.

  11. Barnaby Is Right10-06-2011


    So, the expert wisdom is that we aim to backstop our irresponsible private and public actions in exactly the same way as America has, then? By thinking we can just adopt their strategy and simply monetise?

    It’s working great for them, isn’t it.

    Out of interest, are you aware that our “captive central bank” borrowed $53bn in emergency funding from the Fed during the GFC, on the quiet? We’d never have known, except for the Fed being forced to release the info of who it lent to, thanks to Dodd-Frank:


    I know Billy Blog’s views.

  12. Barnaby Is Right10-06-2011

    P.S. Given it was US$53bn, and the FX rate had collapsed to 60c, the RBA’s emergency borrowings were more like AU$88bn equivalent.

  13. Philip10-06-2011

    I agree with David and Karl. The discussion of Australia’s public debt is a distraction from the real problem, which is the level of private debt.

    The public debt to GDP ratio is around 7%, while the private debt to GDP ratio is around 170%. The interest on public debt is hardly a cause for concern given that it comprises a tiny fraction of GDP. The government has no problem with servicing the debt. Having followed Steve Keen’s work for several years now, he has stated many times that public debt is not an issue, but the level of private debt has always been the problem.

    When people quote absolute figures ($) rather than making a meaningful comparison (GDP), it is a sure sign that they want to scare rather than inform others. For instance, the current US public debt is $14.34 trillion dollars, but constitutes around 100% of GDP. The US had a higher public debt to GDP ratio coming out of WW2, which was then followed by 2-3 decades of the greatest growth in its economic history.

    I fail to see what the problem is with the level of public debt in Australia. It is likely that no other politician apart from Barnaby is talking about it because it is no threat. The Howard government made a big fuss about paying down the debt incurred by Labor during a recession(!) but they only managed this because the Coalition’s time in power was buoyed by three debt bubbles: the tech bubble, the housing bubble (1996-2011), and the overarching debt bubble since the 1960s.

    Concerning the issue of Australia’s looming debt-deflation, it can follow two paths. The first is to throw immense amount of public debt at the FIRE sector to bail them out. The second is to follow the Swedish example of the early 1990s of a bailout combined with a debt write down. This cost the Swedes 4% of GDP, going down to 2% or zero depending on how rates of return were calculated. Shortly afterwards, the economy resumed it path of business as usual.


    The commentary over public debt is far more political than economic. It serves as a distraction as Karl mentioned because the reasons as to why private debt is massively increasing are ignored.

  14. David Collyer10-06-2011

    And again, to Barnaby at 12.08 and 12.15, the RBA and FRB EXCHANGED both assets and liabilities, enlarging the balance sheet of both institutions by an equal amount. This added to the liquidity of both institutions and it was an honour to help the US in this way at a very difficult time. We have done similar with Thailand in living memory, though on a much smaller scale. You seek to portray Australia as a mendicant state, which is an egregious insult to the Australian Treasury, the RBA and every citizen in this country.

  15. james espositos11-06-2011

    Anyone who believes that public debt is not a problem in this country should look at the level of taxation governments are imposing on the economy which is begining to squeeze most sectors to a slow death.Just take a glimpse.Income tax up,flood levy,carbon tax,council rates,water rates,gst,compensation and bail outs for corporates,subsidies to various ie car industry.stamp duty,fines and penalties up,public private partnerships the list goes on and on.All forms of govt are up to their eyeballs in debt through shear waste and pathetic and gutless policy making which advances only the elite and leaves mostly the middle class to carry the can for the “common good”.These factors coupled with others is a signal to disconnect from the property titanic.

  16. David Collyer11-06-2011

    @ James. We have bad tax structures, which the Henry Review would sweep away, but we do not have public debt worthy of mention.

  17. Philip11-06-2011

    I’ve read through the Henry Tax Review, and it is astounding. 125 taxes burdening business, labour and consumers. 10 of the 125 taxes are responsible for 90% of the government’s tax revenue, with the other 115 taxes accounting for the other 10%.

    The Review still does keep incomes taxes on business and labour, though it does advocate a big shift towards rent resource taxes and of course the land value tax, though set at 1%!

    Still, the implementation of this tax system is much preferable to our current system, and pushed to its logical end, would result in income taxes been completely abolished in favour of land and resource taxes, as well as sin and externality taxes.

    Progressive parties and movements are often denounced for increasing the tax burden. For instance, if the Green Party were to adopt a program of abolishing the 125 taxes in favour of 4 (land, resource, sin & externality), it would easily kick the crap out of the ALP in the next election. It is not lost on the Australian public that governments are piling on taxes, though less well-known is the ever-increasing shifting of the tax burden from the FIRE sector to the productive sector.

    As the business commentator Kohler put it: “Five years ago Treasurer Peter Costello told Australians: Work for a living and we’ll tax you at close to 50 cents in the dollar; speculate and we’ll only take 25 cents. Not only that but, as a special deal – while stocks last – we’ll pay half your speculating costs.”

  18. hobbit15-06-2011

    what about a renter’s revolt. Encourage those renters who can move in with friends or move back to their parents for 6 months to do so or rent a room from a friend! Only when there are more rented properties than renters will there be a shift in housing affordability!

  19. Karl Fitzgerald
    Karl Fitzgerald21-06-2011

    Well said Philip, you’re always welcome at 1/27 Hardware lane Melbourne for a cuppa tea. We need more writers like yourself!

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