The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Tuesday, March 30, 2010

How much have Sydney house prices risen by since 2003?

Go on, you will never guess. Truth be told, when I ran the numbers I did not believe them...But, they were right. I then proceeded to ask a bunch of top economists the same question. And they were all wildly wrong. The closest I got was one of my partners and a government economist, who both guessed “low single digits” per annum. Way wrong. One super fund advisor suggested an incredible 15% per annum. That just shows you how distorted our perceptions of house prices are…And these guys live in Sydney!

The truth is this: Sydney house prices rose by just 0.7% per annum between December 2003 and December 2009. In contrast, per capita household incomes across Australia grew by 5.7% per annum. That is, disposable household income growth massively outstripped Sydney house prices. If we include apartments, semis and terraces, Sydney house prices increased by a still piddling 1.3% per annum over the same period.

In real terms (ie, after accounting for inflation), Sydney house prices have fallen over the past six years. Have a look at the Sydney house price index (in nominal terms), which I have enclosed immediately below. Amazing. Of course, if you listen to Kochie, or others jawboning house prices, you would be led to believe that the cost of Sydney property had risen at an extraordinary rate. In this case, they are all wrong.

Moving swiftly on, I have been pretty busy in the last 24 hours. Too busy, in fact. On Monday night I gave this dinner speech to the National Housing Supply Council. Saul Eslake was kind enough to invite me. Although despite the proposed 6.30pm kick-off time, I did not actually start until 9pm. A late night. Anyhow, I would recommend you have a look at the second section called “Thinking About the Future”.

I basically argue that our national housing strategy is all messed up: we cannot solve for our housing needs until we first develop a national population strategy. Once we work out what our socially and economically optimal population will be in 40 years’ hence, we can start thinking about our infrastructure needs. And once we have a highly granular infrastructure plan for all states and territories, we can then finally turn our minds to housing supply. Right now it appears that the government has no idea what our idealised population levels should be, at least judging by the publicly available projections. And in my book, that is a pretty big problem.

And then today I gave this speech on policy options for banking and securitisation to the ABF Mortgage Innovation 2010 conference that the RBA’s Guy Debelle also spoke at. While I was tired, I think I managed to provoke some debate.

Finally, I sent my article on the Bank of England's proposed "debt for equity swaps", which echoes earlier suggestions I had canvassed while in the US, to the author, Andy Haldane, and got an encouraging response. He said he thought my interpretations were “spot on” and, more interestingly, that a “contractual revolution would be one of the best possible responses to the crisis”. All good stuff, I say. Our much more conservative central bankers should take note.