Influential businessman Dick Smith is one of many who calls Australia’s property market a Ponzi scheme. He told the weekend Australian Financial Review in 2011, “I suggest to people who have big borrowings on a house, it’s all a Ponzi scheme.”
A Ponzi scheme provides returns to investors from money paid by subsequent investors, i.e. the property market requires new entrants (‘Greater Fools’) to pay more for housing than the previous person, so the scheme can keep operating (house prices continue to rise).
Figures on housing finance released by the Australian Bureau of Statistics today show the number of housing loans provided to owner occupiers’ fell by a seasonally adjusted 1.5 per cent in December 2012.
Loans for the purchase of existing dwellings fell 2.1 per cent, while loans for the construction of new dwellings increased 1.2 per cent and 2.9 per cent for the purchase of new dwellings. It is expected very generous grants for the construction of new homes is keeping this segment of the market above water.
The value of loans fell 2.6 per cent in December with owner occupier’s spending 2.7 per cent less and the value of investor loans falling 2.4 per cent.
The portion of first home buyers entering the market has hit levels not seen since 2004, falling to just 14.9 per cent of the market. Changes to first home buyer grants may have contributed to some of this fall and data in coming months will prove or dispel this theory.
First home buyers are either choosing not to enter the market at this stage, or have been priced out altogether. Hopefully, they are smarting up.
Prime Minister Gillard’s Home Truths
In Prime Minister Julia Gillard’s address to the National Press Club a fortnight ago, the same speech announcing the September 14 election, the Prime Minister took stock of the nation’s position commenting:
Superannuation returns are only just beginning to recover from the hit delivered by the Global Financial Crisis. Capital city housing prices have not grown at all in the past twelve to eighteen months, compared to the average yearly gains of eight to ten per cent in the years before the GFC.
These two impacts have us worried that our dreams of financial security are harder to achieve than ever before.
Today, we save over 10 per cent of household income. In the years before the GFC, we used to save nothing as a nation.
It was a phase that could not last – but unsurprisingly, many Australians miss those days when they could spend all of their income, see wealth increase through ever-rising house prices, and through easy credit, borrow against the house again to spend more.
Ms Gillard said “It means it can be a struggle to make ends meet and it can seem far harder to get ahead in the post-GFC world.”
Over time, the uncertainties and pressures we live with have led some of us to be concerned that our children won’t live a better life than us.
I want this audience to feel all the force of that concern. I most certainly do.
But first home buyers should consider themselves lucky so far. Housing affordability was absence from her plan for the future, tabled in the third and final part of her address. When it comes to housing affordability, no action is better than action. Predecessors before her had resorted to grants to help first home buyers enter the market and in doing so drove house prices up beyond the reach of many more.
Instead jobs were the key concern, along with the persistent strength of the Australian dollar and what Australia will do after the peak of the resources investment boom.
» First time buyers lead housing finance slide – The ABC, 11th February 2013.
» 5609.0 – Housing Finance, Australia, Dec 2012 – The ABS, 11th February 2013.
» National Press Club: Julia Gillard – The ABC, 30th January 2013.
» First-home buyer plunge – The Sydney Morning Herald, 12th February 2013.