The Great Property Debate

Hey everyone,

Hope that you’re well. Earlier in the week, my husband and I headed into town, to attend the Property Bubble Crash Debate. I had been looking forward to this debate for some time since I heard about it, as a couple of people who I follow and share the same point of view with where speaking (being Steve Keen and Kris Sayce). Today, I thought I would share with you about this event from my perspective.

It was quite interesting to me, to sit up the back and watch the room at the Wesley Centre fill up with people, mainly men, most in business attire. All attendees were given their own copy of the magazine: “Smart Property Investment” to take home. On my rough count, there would have been around 300 to 400 people in the room. The 7 speakers on the panel were already down the front, seated, ready to go. The media (Channel 10 and the ABC) had their cameras and reporters there.

The event was kicked off with the question “How many people in the room don’t own property?” The response to this question took me by surprise – at least half the room put their hand up!

The speakers were then introduced and given 15 minutes each to share their findings and beliefs. I had my notebook and pen out, taking down a few notes from each speaker. To my husbands and my surprise, some of the speakers only took their findings back to the last 100 years of history, no further. As most of us know, you only need to look back on history to see what’s going to happen next.

Dr Tony Hayek, the CEO of Blue Wealth Property Research Group was the first speaker. He was very engaging, believing whole heartedly in property and that it was the way to build wealth for people. “The property market has grown consistently forever” was one of his comments. He didn’t believe that Australia was in a housing bubble. From his personal view point, the GFC had been good to him through his property investments, by interest rates being lowered, rents being raised and property values here in Australia rising greatly during this time.

David Collyer, Managing Director of Prosper Organisation was the next speaker. He does not own property and is a renter. David has organised the buyers strike that is currently going on here in Australia. David believes that property here in Australia is in a bubble and it is the wrong time to buy. One of Davids comments was that “Property is not a one way bet.”

David reminded us of way back in 1888, when Melbourne was the second largest city in the British Empire. The banks went down during this time and not one  house was built for 20 years! One of the main reasons Australian banks today haven’t failed is because of the government deposit guarantees. Lets not forget that our Australian banks were at the edge of collapsing during the recent GFC, before they secretly borrowed billions of dollars (without shareholder knowledge), from the Fed in the US.

The property spruikers say that property is just going to keep on going up, but they continually leave out history from hundreds of years ago. Property spruikers are either ignorant of history, which always repeats itself, or they purposefully leave out this information so people keep buying property. Property spruikers usually only talk about the last 50 to 60 years. It always pays to look way back in history.

David took us for a look at this generation coming up behind us, having to pay hex fees, where education back in our day was free. The generation coming up next also have to fund their own retirement, as well as their parents, the baby boomers. For this generation coming up it will take 2 incomes to pay off a house, whereas our parents did this with one income. The weakness in our economy is in the private debt sector.

“When disillusion falls upon an over optimistic and over bought market, it should fall with sudden and catastrophic force.” John Maynard Keynes. This quote David included in his presentation.

David also shared with us, according to the tax office, that 1.7 million Australian taxpayers have one or more rental properties that they receive rental income from.

Amanda Lynch, the CEO of the Real Estate Institute of Australia was up next. She informed us that the REI of Australia represents around 77,000 real estate agents. Amanda didn’t believe that property in Australia was in a bubble, and that things here are very different to the USA. Amanda claimed that “housing is the engine room” of the Australian economy.

My husband and I were very amused at the property bulls, (Amanda being one of them). We thought she did a great job reading her slides to the audience (like we were not capable of reading ourselves), and it really seemed like she had zero idea or understanding of what she was reading herself!

After Amanda’s presentation, the host for the day, David Hayward brought to our attention the movie “Inside Job”, that if we hadn’t seen it, it was a movie worth watching.

Professor Steve Keen, Associate Professor, University of Western Sydney N.S.W was up next. I was really keen to hear from him and not at all disappointed. He asked us: “What drives house prices?” His answer: “Money pressures drives house prices up.”

Steve mentioned that the supply of housing in Australia (new building) had exceeded population flow with the exception of the period between 2006 through to 2010.

People don’t buy houses, people with mortgages do! You need accelerating debt to have house price rises. Steve then asked where mortgages come from – which is a very important question and one that most people don’t know the answer to.

Steve Keen quoted Holmes 1969 (pg 73): “In the real world, banks extend credit, creating deposits in the process and look for reserves later.”

Mortgage debt is now deccelerating here in Australia. The recent house price boom has been caused by what Steve calls the “First Home Vendors Boost.” We have a bigger mortgage bubble here then in the USA. Australians are more indebted then America. Australian banks have financed an even bigger bubble then did the USA! My husband and I can’t help but totally agree with what Steve Keen shared yesterday. Things are not different here, they are the same, but worse!

The next speaker up was Shane Oliver, the Chief Economist at AMP Capital Markets. Shane didn’t believe we were in a property bubble but were heading towards a correction. Shane seemed very balanced towards each side of the debate. Shane shared with us that Australian housing is very expensive compared to the rest of the world. Australians have a huge income to debt ratio.

Kris Sayce was up next. He is the editor and chief of the Money Morning Publication. If you haven’t subscribed to this free daily newsletter, you should (click on the link below). Kris spoke about the lies behind the so called chronic housing shortage, showing that Australia has an oversupply of housing. The figures that are released to the general public re Australia’s “chronic” housing shortage are based on the homeless numbers across Australia.

Kris also shared that you need credit growth in order to get the house price growth. Kris also showed evidence why Australia’s house price to income ratio is higher than other countries. More of what Kris shared about at the debate can be viewed here:

http://www.moneymorning.com.au/

I was glad to have set aside the time to attend this debate. I really appreciate the truth that was shared by some of these speakers, telling it as it really is, which is certainly not what you will hear in the media, nor by the property spruikers.

There is far more to real estate and housing then just buying a house. Wealth cycles go up and down. The most important thing that you could ever learn is to be able to read the cycle that the different asset classes are in, and then invest in the asset class that is undervalued (while the crowd is off chasing what is overvalued and making headlines on the news), and then selling that asset class when the crowd is chasing it at its peak.

Until next time,
wishing you all the best,
Kerrie Kelso.