The International Monetary Fund (IMF) has warned another devastating global housing crash, reminiscent of 2008, is on the cards if governments around the world fail to take decisive action. Global house prices are now at a level that could pose significant systemic risk to economies around the world.
In a bid to share “cross-country information, analysis on housing markets, and discussions on the effectiveness of policy response”, the fund has created a new website – Global Housing Watch.
According to the IMF, Australia had the third most expensive housing on a house price to income metric, and the fifth most expensive on a house price to rent ratio in the 4th quarter of 2013, noting they are “well above the historical averages.”
While over 20 advanced and emerging economies have taken action through macro-prudential polices, Australia continues to do nothing and this “benign neglect” has put Australia firmly in the sights of the IMF.
The Fairfax’s Clancy Yeates wrote last Thursday under the headlines, “House prices among world’s most expensive”:
Australian homes are among the most expensive in the world when household incomes and rents are taken into account, International Monetary Fund figures show.
As part of a move to push governments to act against housing bubbles, the fund unveiled comparative data on Thursday morning intended to underline the high cost of homes.
It shows rising prices have pushed two key measures of home values – the ratios of house prices to incomes and prices to rents – well above their long-term averages.
On Friday, British Chancellor of the Exchequer, George Osborne announced he will give the Bank of England the power to limit house prices to help limit financial instability.
It is common understanding the frothy housing bubbles that burst in 2007-09 were created by interest rates being set too low after the tech bubble. Cheap credit fuelled the housing bubbles.
But that was over 10 years ago, now only a distant memory. Lending Finance data released by the ABS on Friday show investor credit demand in markets such as NSW is out of control, once again fuelled by 60 year low interest rates.
Warwick McKibben, a former RBA board member told the Australian Financial Review last week he believes the RBA has cut too far, creating unsustainable booms in both housing and stocks.
Of course, macro-prudential controls, if used early, could have allowed the central bank to lower interest rates thus cushioning jobs, while preventing a destructive housing bubble from forming.
World economic system is ‘madness’ and close to collapse: Pope Francis
Pope Francis has made a scathing attack on the World’s economic system, calling it “madness”. He commented that some countries had a youth unemployment rate exceeding 50 per cent, and warning the global economic system is close to collapse because of a “throwaway culture” of greed.
“Our world cannot take it any more. Our global economic system can’t take any more. We discard a whole generation to maintain an economic system that no longer endures.”
“I think we are in a global economic system that is not good.”
With our country drowning under high household debt levels, a new crisis is looming – a entire generation of long term unemployed.
On Thursday, the ABS released labour force figures showing the jobless rate for youth aged 15-24 is now 13.1 per cent and the portion of young Australians with a job is now at lows not seen for two decades.
Piers Akerman of the Sunday Telegraph writes today under the headlines Increasing youth unemployment a threat to the ongoing stability of the nation, “FORGET Generation X, Y and Z; the real threat to the ongoing stability of the nation is Generation M — M for Missing.”
Akerman reports on quotes from Australian Chamber of Commerce and Industry (ACCI) CEO Kate Carnell saying a lost generation is being created. “There’s a clear disengagement and if they’re disengaged at 25, they’ll be disengaged at 45 and they’ll become long-term unemployed,” she said.
This comes at a time when the Abbott government has cut unemployment benefits for Australians under 30 in the recent Federal Budget. Once passed though parliament, anyone under 30 who loses their job will have to wait 6 months for unemployment benefits.
But as Dan Harrison of the Sydney Morning Herald reports, unemployed youth must apply for 40 jobs a month in the 6 months before obtaining benefits and be expected to pay their own way for transport, phone calls, internet and other expenses while they undergo a search for a new job. And don’t even consider Australia’s expensive housing – They will probably have to move back in with Mum & Dad.
Opposition Leader Bill Shorten said the changes would create a “forgotten generation of Australians – shut out of the workforce.”
This can’t be good for the sustainability of the Housing Ponzi Scheme, can it?
» Era of Benign Neglect of House Price Booms is Over – The IMF, 11th June 2014.
» It’s official: Australia’s property prices are out of whack – The Drum, ABC – 12th June 2014.
» Home prices outpacing earnings: IMF – The Sydney Morning Herald, June 12th 2014.
» RBA cuts went too far: McKibbin – The Australian, 13th June 2014.
» Reserve Bank of New Zealand lifts interest rates again – The ABC, 12th June 2014.
» Bank of England given new powers to bust housing bubbles – The Sydney Morning Herald, 13th June 2014.
» World economic system is ‘madness’, puts money ahead of people, Pope Francis says – The ABC, 14th June 2014.
» Increasing youth unemployment a threat to the ongoing stability of the nation, writes Piers Akerman – The Sunday Telegraph, June 15th, 2014
» Unemployed youth must apply for 40 jobs a month – The Sydney Morning Herald, 12th June 2014.