Adam Schwab in yesterday’s Crikey email notes the continuing housing affordability crisis that our governments are utterly failing to tackle:
Another year, another massive increase in house prices and more excuses proffered by the real estate industry as to why Australia’s houses are among the most expensive in the world. A survey by the Canadian Bank of Nova Scotia revealed that even after adjusting for inflation, house prices rose in Australia by 9.4 percent in 2010 — more than any other country surveyed…
Over the past year real incomes have risen by around 4 percent — that means, even after more than a decade of housing boom, prices are still clearly outstripping income growth. That means Australians continue to devote more of their wealth to housing, as opposed to other income producing assets. That is a lot of misallocated capital. And eventually, that misallocation of capital will lead to an inevitable drop in living standards.
But if the “I’m alright thanks Jack” people who bought their houses long before the boom aren’t becoming increasingly bothered that their sons and daughters are staying with them into their thirties, what will finally prompt the big party politicians to seriously tackle the problem?
Citigroup has a rather different take on all of this. It notes that the rich have been getting richer and they want to help them to get yet richer! It thus says with respect to good investments: “we like companies that sell to or service the rich — luxury goods, private banks etc.”
It notes that “the rich are the dominant source of income, wealth and demand in … the UK, US, Canada and Australia, countries that have an economically liberal approach to wealth creation”. It suggests “the rich are going to keep getting richer in coming years, as capitalists (the rich) get an even bigger share of GDP as a result, principally, of globalisation”. Fortunately “the global pool of labor in developing countries [will] keep wage inflation in check”.
It asks “what could go wrong?” Well, “the rising wealth gap between rich and poor will probably at some point lead to a political backlash … At some point it is likely that labor will fight back against the rising profit share of the rich …”
But, happily, it “doesn’t see this happening yet, though there are signs of rising political tensions”.
Oh, I think they can probably keep those contained, don’t you?
UPDATE (19/1): The Age continues its policy of blaming the high prices on whatever the real estate industry would like to blame, rather than ever considering that the real estate industry clearly benefits from prices being high!