Blog

Fri, 10 Mar 2017  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/mar/08/to-tackle-housing-affordability-scott-morrison-must-get-more-homes-built 

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To tackle housing affordability Scott Morrison must get more homes built

Scott Morrison is aiming to make housing affordability a key policy aspect of the federal budget in May. If the treasurer can set in place policies that go towards achieving this, it will be good news for the economy and for issues of fairness and equity.

Housing affordability is relatively easy to calculate because it is the interplay of house prices, household income and the level of mortgage interest rates. Nothing else drives affordability, although having a deposit helps too.

There are three factors that can improve affordability: falling house prices, rising wages and lower interest rates.

Wed, 08 Mar 2017  |  

I continue to wonder why the super-charged debate on Australian housing is so devoid of reliable facts and analysis. So much of the debate relies on privately manufactured snake oil, made up of unproven survey results, pretend numbers, factual errors and sweeping generalisations that fit into the "OMG I'll never be able to buy a house" narrative that generates lots of clicks and unleashes pent up anger. The media, or a large part of it, love these 'crises' and report the snake oil without doing any background checking or research to see whether the report they are covering is in any way accurate. 

So little of the news, reporting and commentary makes reference to the comprehensive, in depth, reliable, considered and unbiased research of the RBA.

While house prices are not a direct policy aim of the RBA, distortions in the housing market can have consequences for the marco economy, inflation and financial stability, which is why it spends a lot of time researching the issue and, thankfully for those with an open mind, the RBA published much of its findings.

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.

THE LATEST FROM THE KOUK

The Australian stock market is a global dog.

Sat, 24 Jun 2017

This article first appeared on the Yahoo7 web page at this link: https://au.finance.yahoo.com/news/1381246-234254873.html 

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The Australian stock market is a global dog.

At a time when stock markets in the big, industrialised countries are zooming to record high after record high, the ASX200 index is going no where. So poor has the performance been that the ASX is around 20 per cent below the level prevailing in 2008.

It is a picture most evident in the last few years. Since the middle of 2013, the ASX 200 has risen by just 10 per cent. The US stock market, by contrast, has risen by 50 per cent, in Germany the rise has been 55 per cent, in Canada the rise has been 20 per cent, in Japan the rise has been 45 per cent while in the UK, with all its troubles, the rise has been 15 per cent.

So what has gone wrong?

Tony Abbott and debt

Fri, 16 Jun 2017

With Tony Abbott and governemnt debt hot news topics at the moment, I thought I would repost this artricle which I wrote in April 2013:

Enjoy, SK

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Here’s a true story. It’s about a man called Tony.

Tony is a hard working Aussie, doing his best to provide for his family. He has a good job, but such is the nature of his work that his income is subject to unpredictable, sharp and sudden changes.

Tony’s much loved and wonderful children go to a private school and wow, those fees that he choses to pay are high. He used to have a moderate mortgage, especially given he was doing well with an income well over $200,000 per annum.

Then things on the income side turned sour.

Tony had a change in work status that resulted in his annual income dropping by around $90,000 – a big loss in anyone’s language.

How did Tony respond to this 40 per cent drop in income?

Well, rather than selling the house and moving into smaller, more affordable premises, or taking his children out of the private school system and saving tens of thousands of after tax dollars, Tony called up his friendly mortgage provider and refinanced his mortgage.

In other words, Tony took on a huge chunk of extra debt so that he could maintain his family’s lifestyle. No belt tightening, no attempt to live within his means, just more debt.