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Bubble, Bubble, Toil and Trouble
5 October 2017
After years of predominantly negative articles written about the property market in Australia a journalist Adam Creighton has written an article published in The Australian, titled “The trouble with bubbles”. (You may require a subscription to The Australian to open this article). This is one of the few articles I have seen actually challenge the accepted media line that residential property is in or fast approaching a huge oversupply.
Adam Creighton begins his article by saying the horror stories we hear are not based on facts and goes on to say “Strictly speaking there is no housing affordability crisis. If houses weren’t affordable people wouldn’t be buying them. But they are buying them, in droves. Over 50,000 home loans have been approved every month this year, above the average for the past decade.”
Rarely do I ever see a positive or at least an accurate article about the property market and I have been fed a consistent and continuing line that at some point, probably quite soon, the property market is going to collapse leaving especially new entrants to the market well under water and perhaps having their properties repossessed. Even the RBA and Treasury have been involved in this spin and they are putting the fear of God into people about what really is a supply and demand issue.
Now I agree and as I say over and over again, there is always too much of the wrong kind of property and never enough of the right kind of property. Design is the key. But property goes through cycles of slightly oversupplying and undersupplying the market and the reality is that this is just a moment in time which will self-correct as it always does and will continue to do. It doesn’t make sense for anyone building a property if there isn’t an end user for it, this is especially the case for those who develop very large projects. They are keenly aware of the consequences of building more than is required. That’s why I see on occasion developers and builders go broke. But a property is not like many other types of investment. It can’t vanish from the face of the earth and providing the property is fit for purpose, its value will always recover and reflect the cost of replacement.
Just for your interest I have compiled a list of many of the negative articles written by various commentators over the last 15 years or so. Links to these are attached so that you can see what I am talking about.
2004
May – John Stensholt
http://www.theage.com.au/articles/2004/05/21/1085028511533.html
2005
December – Scott Pape
https://barefootinvestor.com/property-market-crash-looms/
2006
August – Jonathan Chancellor
2007
April – Steve Keen
2008
October – Steve Keen
http://www.debtdeflation.com/blogs/2008/10/19/rescuing-the-economy-or-the-bubble/
2010
March – Adele Ferguson
http://www.smh.com.au/business/australias-property-bubble-its-here-20100324-qwi1.html
June – Jeremy Grantham
2011
September – Philip Soos
http://theconversation.com/are-economists-ignoring-australias-property-bubble-3268
2012
January – Jordan Wirsz
February – SMH
http://www.smh.com.au/business/property/record-slump-in-house-prices-in-2011-20120201-1qsid.html
2013
January – Philip Soos
http://www.propertyobserver.com.au/finding/residential-investment/20381-ytc-philip-soos.html
June – Philip Soos
2014
March – Christopher Joyce SMH
2015
August – Nyshka Chandran
https://www.cnbc.com/2015/08/03/trouble-in-paradise-for-australias-property-speculators.html
2016
May – Roger Montgomery
https://rogermontgomery.com/yes-its-over-property-prices-to-fall/
August – Steve Keen
https://www.finnewsnetwork.com.au/archives/finance_news_network124108.html
All of these articles are negative and predicted a collapsing property market where everybody who entered that market could potentially lose their shirt. Clearly that hasn’t happened, at least for most people, and it’s not likely to happen moving into the future.
Our banks and regulatory authorities have checks and balances in place, some of them are way too broad and don’t deal with specific markets, but they have to use some tool to cool an over exuberant market. And I agree, markets can at times become over exuberant, but all that means is that providing the purchaser can afford to hold the property that they have bought they may have to wait a little longer to see the price growth that they were hoping to have earlier.
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