There’s been some discussion of late about what’s wrong with the housing market in Australia here and here.

The simple facts are these, house prices have grown enormously over the past years, but inflation has remained very low in global terms (~3% or 4%). Inflation cannot account for the rapid increase in house prices.

Many property owners went through a spate of renovations in the early naughties, whilst a renovation will add some value to a property it can’t account for the tremendous increase we’ve seen in this country – after all you can’t transform a $250k house in to a $400k house just by putting in new floor boards and giving it a lick of paint.

The cost of actually building a house (i.e. the materials and labour) is pretty affordable (and always has been) and costs have not risen much at all in the last 10 years. The cost of building cannot account for the rise the price of houses.

Land is the commodity that has risen dramatically in price. Why? Do we have less of it than we use to? Has our population suddenly spiked as during the baby boom? No. Average lot sizes are now 1/8th of an acre, the ¼ acre block is a distant memory. Land prices have grown even in those states that see net emigration to other states outweighing their net immigration from other states.

The only rational explanation for the rapid rise in the cost of land is speculation. Very little real value has been added to the cost of land over the past ten years and such value as renovations might have added cannot account for the continued increase house prices because a after a period of time the market will have priced those renovations in to the price of houses and prices will plateau, especially if they were widespread and some time ago.

This situation is aided and abetted by governments of both persuasions and at both federal and state levels. First home owners were given $7000 of money for nothing under Howard and this continued under Rudd. Indeed this was tripled for a period of time during the GFC and the $7000 giveaway continues to this day. In addition, federal governments of both persuasions have retained negative gearing (a tax practice that is illegal in most of the rest of the word barring New Zealand and Canada) and kept Capital Gains Tax at absurdly low levels, even as incomes and asset prices rose. Both of these things encourage speculation, as does the government’s 100% backing of virtually all bank accounts. It might have made sense to sure up confidence in the banks by backing deposits during the GFC but it makes very little sense now. States seem uninterested in promoting density, instead releasing land that was previously zoned as semi rural thereby promoting urban sprawl and which doesn’t attract first home buyers who presumably would like to have something approaching a reasonable commute to and from work.

We hear screams from the property developers about a piddling 1.9% decrease in house prices in Perth, the way they were carrying on you’d think it was the end of the world. First home buyers are told to “get in now” so they “don’t miss out” on the market even though the price (not the cost mind you) of houses continues to outstrip yearly incomes manyfold and is continuing to grow. All of which is classic bubble behaviour.

When a capital strike is suggested (which will probably be ineffectual in itself) those baby boomers who have benefited most from the status quo turn around and sneer that the people signing up to it on the website couldn’t afford it anyway (I could for one but that’s besides the point). If that were genuinely so, the reaction would have to be described as pretty hysterical, as you’d except when prices are overinflated – a collapse in the value of their investment properties would do them serious financial damage and in a bubble, perception is everything. Herd psychology doesn’t have to be rational but damn it’s powerful.

It seems unlikely that either the Labor or the Liberal parties would be brave (in the way that Sir Humphrey Appleby would use that word) enough to tackle the negative gearing and CGT rorts on their own, let alone be mature enough to put the national interest first and adopt a bipartisan policy of enough’s enough when it comes to negative gearing and CGT so we’ll be waiting for some little psychological spark like, say an online capital strike petition to bring down the ponzi scheme that is the Australian real estate market. Here’s hoping…

Billionaire industrialist Richard Pratt died late yesterday after a bout of prostate cancer and long succession of the rich and powerful coming to his bed (in the house formerly owned by Archbishop Mannix). As with Kerry Packer, the Australian media (both corporate and to a lesser extent the ABC & SBS) are out lionising him. I find it interesting how when one of these guys dies (I’ll be fascinated to see what paeans are lavished on Chairman Rupert when he goes) they get portrayed as some sort of national hero, even more strangely, a hero for the common man. This goes far beyond simply not mentioning the less savoury parts of their lives, but exults them into gracious gentlemen whilst misdealings simply fade to black.

Just as Kerry Packer’s very dodgy tax dealings dug up by the Costigan Royal Commission didn't stop the most appalling sycophancy from the media when he died (particularly from his very own Channel 9); so too Richard Pratt – a man convicted of price fixing (and whose company copped the biggest ever fine in Australian corporate history) and charged with perjury, a charge that was only dropped because of his impending death and a charge which Commonwealth Prosecutor Mark Dean SC told the Federal Court that the CDPP believed would have succeeded if it had been pursued. We were also treated to former Victorian Premier Jeff Kennett telling us

“Stress and anxiety when you're crook are not good partners. It's hardly a benefit. He genuinely thought in making the admission he did (that he was guilty of price fixing), in the interest of his family and his business, that that was the end of it; they'd come to an arrangement. And all of a sudden, they fired a second arrow into the air, and that has hurt him.”

Yes the nerve of the ACCC, charging a man with perjury when he admitted lying to the Federal Court. Who do they think they are?

He also fathered a child with a woman he had an affair with and yet we saw the family man on the media reports.

Notwithstanding that people usually say nice things about someone who’s just died, the media could do better than just putting him up there as just a gentleman philanthropist, whose death really matters to people worried about losing their jobs and their homes.

For some reason watching this story play out on the news over the past few days reminded me of the death of Lord Marchmain in Brideshead Revisited. A rich old man dying in his grand house – reading the book and watching Lawrence Olivier in the TV series, I found I just couldn’t care, given that the rest of Britain was in the grip of the depression at the time. The parallel is rather apposite come to think of it.

Australia and New Zealand have joined together to help fund the Burmese junta, Brunei’s absolute monarchy, Malaysia’s suppression of democracy, Singapore’s one party state, Thailand’s illegitimate government, and the Vietnamese and Laotian Communist Parties through the new free trade agreement with the Association of South East Asian Nations (ASEAN).

This is the first Free Trade Agreement Australia has signed since the onset of the global financial crisis and continues the government’s commitment to ignoring human rights abuses in other major trading partners like China and countries in the Middle East.

It seems despite all the talk coming out of the G20 meeting London and the hot air coming out of Rudd last week when he talked about how people had been worshiping the false god of “unfettered free markets”, (speak for yourself Kev) the old order isn’t quite dead, it’s just recapitalising.

“It powerfully demonstrates Australia’s – and the region’s – strong commitment to opening up markets in the face of this crisis.” Australia's Trade Minister Simon Crean said in his media release.

“Australian primary producers are now being guaranteed greater access to developing South East Asian markets, many of which have a growing appetite for high quality Australian produce,” Mr Crean said.

Like all free trade agreements there will be winners and losers. Winners will be sweatshop owners in places like Indonesia and Cambodia making cheap Nikes and electrical goods who of course are world-renowned for fair treatment of their workers, high wages and their strong support for unions and Occupational Health and Safety practices. Kleptocratic officials and politicians also stand to do well through growth in corporate tax revenues and kickbacks paid to ensure ideas of changing the system remain just that.

Not so lucky are the South East Asian small farmers, workers in general and migrant workers in particular who now will have to deal with a flood of imports and more pressure to keep wages low and conditions shitty. Australian and New Zealand workers can look forward to more outsourcing of their jobs as employers look to undercut wages and working conditions at home by moving to countries with cheaper labour and more…accommodating labour laws like Pacific Brands (makers of some of best known Aussie clothing brands) did a couple of weeks ago.

The Textile Clothing & Footwear Union of Australia is shocked that the Australian Government would encourage open trade with the Burmese regime. National Secretary Michele O’Neil deplored this policy stating that it sent a bad message to a repressive regime responsible for numerous grave human and labour rights violations. “How can you have so called free trade with a repressive regime?”

Aung San Suu Kyi has long called for a boycott of Burma.

“I am proud of this agreement, as it represents a historic milestone for Australian trade negotiations,” Mr Crean tells us.

Historic indeed.

One of the more positive consequences of the economic woes of late. The media conglomerate has been forced to take an US$8.4 billion write-down on its TV and newspaper assets. Not something you're likely to hear about from Chairman Rupert's many media outlets. It couldn't happen to a more deserving man.

Quite a good write up on the conservative myths about the sub-prime crisis.

http://www.alternet.org/workplace/101127/?page=entire">