Blog

Tue, 07 Mar 2017  |  

This article first appeared on the Yahoo7 website at this link: https://au.finance.yahoo.com/news/can-we-fix-housing-affordability-from-supply-side-232827776.html?soc_src=social-sh&soc_trk=tw 

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Addressing housing affordability with a sellers subsidy

Let’s fix housing affordability from the supply side.

Instead of cash incentives to buyers which will only fuel a surge in already strong demand and further add to price pressures, what about a government policy that offers, say, $15,000 for owner occupiers to put their house on the market and sell it, and investors $25,000 to sell their investment properties?

Think of the flood of houses that would come on to the market as people close to selling but not quite across the line take advantage of the Home Sellers Grant.

Investors, increasingly frustrated with very low rental yields and now perhaps starting to fret about the prospect for higher interest rates in the not too distant future, might get out while the going is good. The fresh supply would likely be substantial.

Buyers would likely be flooded with choice. Sellers may be inclined to accept a lower selling price knowing it will be topped up by the grant. Of course, there could be a price threshold for the selling price ensuring sellers of super expensive property don’t get the subsidy. This could be assessed at the median price for each town and city calculated from the various house price data bases.

Thu, 02 Mar 2017  |  

Click on the link to hear the podcast of me on The Minefield talking Sunday penalty rates, among other things, with Scott Stephens and Waleed Aly.

https://www.abc.net.au/radionational/programs/theminefield/penalty-rates:-why-should-sunday-stay-special/8310496 

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Late last week, the Fair Work Commission handed down its long awaited decision to reduce penalty rates for Sunday workers in fast-food, retail and hospitality.

Federal politicians promptly framed the matter in the predictable terms of the conflict between the interests of Capital and the interests of Labour, and took their sides accordingly. But is the tension between Capital and Labour – the sustainability of small business versus the rights of workers – really what is at the heart of this matter, or is there something deeper at stake?

Wed, 01 Mar 2017  |  

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/798497-220715204.html

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Housing affordability - still favourable according to the RBA

The housing affordability issue remains a hot-button point in Australia with prices rising at a solid pace.

This rise in prices has created a perception that housing is getting further out of reach for many, especially first home buyers, as the amount of money that needs to be borrowed to buy a house continues to increases at a pace about incomes.

And that is patently true. In the last year alone, house prices are up around 10 per cent, while incomes are up around 2 per cent.

But the measure of housing affordability that looks solely on house prices and incomes hides a vital element – namely, interest rates. It almost goes without saying that the interest rates paid on a mortgage will fundamentally determine the affordability of that loan and therefore that house.

Paying 4.5 per cent, as is commonly available for a standard mortgage now, it a lot easier – that is affordable – compared with the same loan charging a 9 per cent interest rate, by way of example.

Mon, 27 Feb 2017  |  

The election betting markets react to the weight of money punters place on each possible outcome. When there is a disproportionate flow on one side, its odds shorten (ie, is more likely to win) and the other side widens.

As a result the betting markets reveal the weighted average probability of each possible outcome, be that in elections or on any other event.

In terms of the next Federal election, the opinion polls have Labor 6, 8 or 10 points ahead of the Coalition. Any of these results would result in a thumping election win for Labor.

The betting markets are not as convincing about Labor’s chances at the next election. Labor is favourite, but not overwhelmingly so. In other words, punters are not willing to place their hard earned cash on Labor in sufficient volume at the current odds to drive the price lower. It could be because the election is still probably two years away and a lot might happen between now and then, or that Malcolm Turnbull might pull a proverbial rabbit out of the hat – who knows, but the latest (and best) odds show:

Mon, 27 Feb 2017  |  

The election betting markets react to the weight of money punters place on each possible outcome. When there is a disproportionate flow on one side, its odds shorten (ie, is more likely to win) and the other side widens.

As a result the betting markets reveal the weighted average probability of each possible outcome, be that in elections or on any other event.

In terms of the next Federal election, the opinion polls have Labor 6, 8 or 10 points ahead of the Coalition. Any of these results would result in a thumping election win for Labor.

The betting markets are not as convincing about Labor’s chances at the next election. Labor is favourite, but not overwhelmingly so. In other words, punters are not willing to place their hard earned cash on Labor in sufficient volume at the current odds to drive the price lower. It could be because the election is still probably two years away and a lot might happen between now and then, or that Malcolm Turnbull might pull a proverbial rabbit out of the hat – who knows, but the latest (and best) odds show:

Fri, 24 Feb 2017  |  

New trade:

The RBA has an obsession with house prices in Sydney and Melbourne and is prepared to hold all other sectors, and the rest of the country, to ransom as it wishes and hopes for those housing markets to weaken and some how for the other parts of the economy to pick up.

In my view, the RBA is (and has been) keeping monetary policy too tight for too long. In my view it is making a mistake not cutting rates in the wake of ongoing below trend GDP growth, record low wages, sustained low inflation and a horrid climate for business investment.

History shows that when central banks make a policy error, there are wonderful treading opportunities.

Wed, 22 Feb 2017  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/a-jump-in-demand-to-do-something-about-the-supply-of-houses-034305361.html

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House prices:  Karratha and Sydney - why the divergence

The thousands of students heading off to university this month to start their economics degrees can do so knowing that the basic laws of the discipline still hold. “Yay” – they might say as they sit down to their first Economics 1001 lecture.

Supply and demand is king.

Shortages, gluts, price booms and crashes reflect the supply and demand dynamics. These are the most basic concepts in the study of economics and they apply to the real world.
These basic economic laws apply to the Australian housing market which is going through extraordinary turmoil with prices booming in some areas and crashing in others.

It is not just housing where economy theory turns into reality. In looking at the market for bananas, widgets, fine art or concert tickets, the interaction of supply and demand will always determine the price of those items. But let’s look at housing and think of the following issues and questions.

Based on detailed data from SQM Research, why is it that since 2012, house prices in Karratha Western Australia have fallen by around 65 per cent, while in the lower North Shore of Sydney, house prices have risen by around 120 per cent?

Mon, 20 Feb 2017  |  

This article first appeared on the Guardian website sat this link: https://www.theguardian.com/commentisfree/2017/feb/16/balanced-budget-needs-higher-tax-take-but-which-taxes-should-be-hiked-stephen-koukoulas 

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Balanced budget needs higher tax take, but which taxes should be hiked?

The treasurer, Scott Morrison, appears to be having something of a Gough Whitlam moment. Not in terms of far-reaching social and economic reform, but rather a realisation that the size of government needs to increase. The electorate is demanding a certain base level of healthcare, education, disability care, roads, defence, infrastructure and all manner of goods and services.

Morrison is talking about the need to raise taxes to ensure these government services are provided while simultaneously moving the budget towards surplus, which is an essential element to avoiding the credit rating downgrade that appears to be just around the corner.

He is explicitly acknowledging that, to keep voters happy with decent services, spending must remain above 25% of GDP and perhaps needs to rise further, towards record highs.

Prior to the Whitlam government in the early 1970s, government spending and revenue was generally at, or a little below, 20% of GDP. With the Whitlam reforms, this rose to about 25%, and apart from the swings in line with the business cycle and policy changes over the past 40 years, it has remained around 25%. It has not reverted to pre-Whitlam levels. Not gone close.

Wed, 15 Feb 2017  |  

This article first appeared on The Constant Investor website at this link: It is behind a paywall for subscribers only https://theconstantinvestor.com/stephen-koukoulas-overview-170114/#Whydosofewpeoplenegativegearstocks 

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Why do so few people negative gear stocks?

In recent times, a lot of the focus of public policy has been on negative gearing and how the associated tax rules encourage ‘excessive’ investment in the housing market. This in turn, it is argued, pushes up house prices and freezes first home buyers out of the market. There is something in that argument which will no doubt carry on in 2017 and probably beyond.

What is often overlooked in the debate is the fact that negative gearing investment strategies also apply for shares, in the form of margin lending and related products. So why is it that the overwhelming focus of investors when they negative gear is dwellings and not shares?

Over the past decade or so, as property investment borrowing has boomed, margin lending for stocks has slumped.

According to data from the RBA, outstanding credit for investor housing stood at $562 billion in November 2016. This was up a staggering 319% from the level in December 2007 when it stood at $134 billion.

Mon, 13 Feb 2017  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/aussie-dollar-where-art-thou-035132180.html 

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Why the Aussie dollar is flying high

The Australian dollar has been rising strongly over the past six months and not just against the US dollar where this morning it is hovering just under 78 cents.

The Aussie dollar is also buying over 0.72 euros, the highest level it has been since early 2015 and is up some 10 per cent since May last year. It is also strong against the British pound, Japanese yen and Canadian dollar. In simple terms, the Aussie dollar is flying.
The reasons for the strength are clear.

Importantly, Australia has some of the highest interest rates in the industrialised world which means global investors are keen to pick up a positive yield with their Australian holdings versus those in other countries. With the RBA signaling that is has no plans to cut interest rates and rates in Europe, Japan and Canada unlikely to be hiked any time soon, the Australian dollar is likely to remain attractive for some time.

THE LATEST FROM THE KOUK

Inflation is low and remains low

Thu, 27 Apr 2017

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/inflation-020818312.html 

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Inflation is low and remains low

Inflation edged up a little in the March quarter – from an annual rate of 1.5 per cent at the end of 2016, the headline rate rose to 2.1 per cent. The underlying rate of inflation, which the RBA trends to place more weight on when it comes to assessments of interest rate policy, was even more muted, lifting from 1.5 per cent to 1.8 per cent.

And recall, the RBA target range for inflation is between 2 and 3 per cent.

Annual underlying inflation has been at or below 2 per cent since late 2015, and has been below 2.5 per cent, the midpoint of the inflation target, since the end of 2014. That is a long time.

The data today confirm that inflation is low and remains low and in isolation, continues to give the RBA plenty of scope to further reduce interest rates. When the recent data on unemployment, building approvals, private sector business investment and wages growth are added to the mix, the case for an interest rate cut is strong.

The Australian budget is likely to confirm this is a big-spending, big-taxing government

Thu, 20 Apr 2017

This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/apr/19/the-australian-budget-is-likely-to-confirm-this-is-a-big-spending-big-taxing-government 

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The Australian budget is likely to confirm this is a big-spending, big-taxing government

While much of the focus of the upcoming federal budget will, quite rightly, be policy issues associated with housing affordability, areas of changes to spending and revenue, there will also be an opportunity to analyse the underlying values of the government.

This will be the fourth budget of the current Coalition government and will show us the ‘big picture’ of government policies and priorities. There will be data on aggregate government spending, taxation receipts, gross and net government debt and the budget deficit.

The most accurate way to analyse the trends in the key budget figures will be to assess them as a ratio of GDP. Government spending, for example, totalled $48.8bn in 1982-83 and this rose to $423.3bn in 2015-16, which is, at face value, an enormous increase. But spending actually fell from 25.8% of GDP in 1982-83 to 25.6% of GDP in 2015-16. It is a similar issue with government debt, the budget deficit and other benchmarks.

Based on the performance of the economy since the last fiscal update in December 2016, the budget is likely to confirm that this is a big-spending, big-taxing government with a strategy for continuing budget deficits and rising debt as it funds some of its pet projects.

It is all but certain that government debt will remain above 25% of GDP in 2017-18 and the forward estimates, meaning the government will be the first in the last 50 years to have spending at more than a quarter of GDP for eight straight years.