Friday 27 November 2020

Where all Aussie Talking Heads go to Die.

Australian housing is the subject confounding all and sundry would-be economic prophets, particularly those presenting themselves as mavericks. And after the GFC the population of econo-mavericks exploded.

The prototype of that creature would be Steve Keen, the wannabe-Copernicus cum Chicken Little old bloke whose repeated and repeatedly failed prophecies of housing market doom inspired countless jokes.

There are other, however, less known examples. Say, the Unconventional Economist (aka Leith van Onselen) and the Macrobusiness crew.

Their theories differ, to be sure. For Keen, as a Keynesian (or Keensian, if you prefer), downturns are the result of fiendish Animal Spirits. In particular, his obsession is mortgage-holders panicking when faced with decreasing housing prices. They would all rush to the exit door to sell their properties, at the same time, lowering prices in the process and losing equity. Then they would have had no choice but to cut down aggregate demand, plunging Australia into recession. Worse: that could have a compound effect, for rising unemployment keeps mortgage-holders from servicing their debts, and housing prices would keep falling.

On the other hand, the obsession of the MB crew is immigration, which they see as a (if not the) cause of all of Australia’s ills. For them Australia’s high immigration at least in part props housing prices up: a fall in immigration should do what the Keensian panic failed to do. [*]


Well, Australia went into recession for the first time in 30 years. Sars-Cov-2, not Animal Spirits, was the poltergeist causing that. Specifically, the Morrison Government response to COVID-19 (take that, Stevo). And with the COVID-19 response, employment and participation rates fell (already recovering), immigration has all but ceased with entry restrictions and net migration intake is projected to plummet to negative levels for the first time since World War II.

And yet, the Aussie housing bubble barely noticed, even during the trough of the recession:


No mass defaults or repos or evictions, nobody desperately trying to pass on mortgage-based securities.


Eliza Owen, from CoreLogic, comes with a plausible answer:

  1. Low cost debt: “RBA research previously suggesting that a 100 basis point reduction in the cash rate can lead to an 8% increase in property values over the following two years”. The RBA has reduced interest rates to historical lows.
  2. Mortgage repayment deferrals. Although household debt remains a vulnerability and RBA research shows that “each 100 basis point increase in the unemployment rate could lead to an 80 basis point increase in the portion of mortgages in arrears”, the RBA not only reduced interest rates, it has also injected heaps of money in the economy, which together with a bank temporary mortgage holiday has kept defaults to a minimum.
  3. Job losses affected much more disproportionately those already locked out of the housing market: accommodation and food services, arts and recreation services the two most affected by job losses, are the two worst paying industries in Australia (employing many young Australian and visa workers). Even if these kids lose their jobs, they won’t default their mortgage: they hold no mortgage.

That’s not to say Australia is out of the woods yet. The dumbnamic duo Josh Frydenberg and Phil Lowe may still screw things up big time, what with the reduction of JobKeeper and JobSeeker, as China tightens trade restrictions against Oz.


As Bill Mitchell explains in the British context, Labor and/or the Greens could praise openly the Morrison spending package, while highlighting insistently before the Australian voter why there’s no need to cut fiscal spending yet. If Morrison insists on cutting spending -- as he is bound to do -- he will only be alienating the voters.

Labor won’t do that, though. Albo and Co couldn't be stupider if they tried. Paraphrasing Princess Leia: Help us, Adam Bandt and the Greens, you are our only hope. 


Although I see little “unconventional” in the Unconventional Economist’s comments, you have to admit something most unconventional in him: to his credit, the guy actually admits he was wrong (he’s the one summarising Owen’s research).

Something is something, I suppose. And it’s a lot more than you can say about Keen.

[*] Increasing housing prices that immigration makes possible, their argument goes, mean that a large and growing number of Aussies are priced out of the market (on top of creating all sorts of other problems, from unemployment and low wage growth to environmental and public services degradation and a fall in tertiary education standards).

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