Wed, 25 Jan 2017  |  

This article first appeared on The Guardian website at this link: 


Australia's housing affordability is much more complex than the headlines

Demographia has again hit the headlines in Australia with its seemingly comprehensive report on International Housing Affordability “Sydney affordability nightmare laid bare” and the Australian housing market “severely unaffordable” scream the headlines as reporters cut and paste segments of the Demographia report into their news items. The clicks on these stories must be running high. It even inspired a photo gallery on this site.

There is no doubt that house prices in Sydney and other parts of Australia are high. Housing affordability is an important issue for policy makers including the recently elected premier of New South Wales, Gladys Berejiklian, who said it would be the “biggest issue” for her to deal with in her new role.

Affordability also featured heavily in the 2016 federal election campaign with Labor promising to restrict negative gearing concessions to cover only new dwellings meaning that investors would not be competing with other buyers in the established housing market. “Improved housing affordability” was a central element of this policy.

Unfortunately, the Demographia report doesn’t disclose the specific sources for key data and instead relies on vague and untestable assumptions for the numbers that form the basis of their calculations.

Tue, 24 Jan 2017  |  

This article first appeared on the Yahoo 7 Finance website at this link: 


Labor versus Liberal on Government debt

In the six years of the Rudd / Gillard Labor government from 2007 to 2013, gross government debt increased by $225 billion, from just under $50 billion to just over $273 billion. These figures are from the government agency that borrows money on behalf of the government, the Australian Office of Financial Management.

The escalation in government debt during the Labor years was due to the budget deficits which were driven by lower revenue as the global financial crisis hit tax payments to the government and were also the result of deliberate stimulus measures as the government implemented a range of one-off, big spending, policies to avoid a recession.

It was a policy response that in 2011 meant Australia attained the coveted triple-A credit rating from all three major credit ratings for the first time in its history.

In simple terms, government debt rose by an average of $38 billion a year under Labor and its policies.

Tue, 24 Jan 2017  |  

This article first appeared on The Guardian website at this link: 


Australia's economic malaise comes down to dreadful decisions

It’s time to be blunt about economic management in Australia.

It’s dreadful.

The proof is that economic growth is floundering despite strong global conditions, unemployment has gone from among the lowest in the industrialised world to one of the highest, and inflation is below the bottom of the Reserve Bank target yet interest rates are still high compared with similar economies.

What is going on?

One vital issue has been the collapse in mining investment which has undermined overall economic growth. But this was and is no surprise. The priority for policy makers should have been to ensure the non-mining parts of the economy were growing even faster, locking in real GDP growth at 3% or a little more and striving for an unemployment rate at 5% – or less.

One major failure on this score was the RBA. It has failed to handle monetary policy in the post-global crisis era with much acknowledgment of the crisis legacy of entrenched low inflation.

Sun, 22 Jan 2017  |  

The Mid Year Economic and Fiscal Outlook documents, released by Treasurer Scott Morrison in December, provided an interesting array of data on government finances. Here is the link 

One particularly interesting issue in the MYEFO documents is the ratio of tax to GDP. As this ratio rises, the government makes a large footprint in the economy by taking money from the private sector, through taxes, as part of its budget management.

The following table presents the 10 highest taxing governments since 1970-71 and includes the outlook in the forward estimates to 2019-20. It is an interesting collection.

Wed, 18 Jan 2017  |  

This article first appeared on the Yahoo 7 website at this address: 


Lower Smoking rates – a win for the nanny state

Smoking in Australia is in free-fall. Just 13 per cent of adults smoke daily, which is down from 28 per cent in 1989-90 and over 40 per cent in the 1960s.

There are many reasons why this is a good thing. The population will be healthier for a start, which means they will be more productive and less likely to take sick leave. It also means that the government’s health expenditure costs will be lower with fewer people presenting to the doctor and hospital for the litany of smoking related illnesses. It also means that those who do not smoke can either save or spend their cigarette money elsewhere in the economy.

There are many reasons for this quite massive change in smoking rates. I will not attempt to quantify the impact of each factor, but there is no doubt that societal awareness of the health risks from smoking is dominant.

In a triumph for the role of government in successfully managing change and a blow to those who often castigate the ‘nanny state’, government policies that have banned cigarette advertising, delivered anti-smoking campaigns, the massive hike in excise taxes, banning displays of tobacco in retail outlets, graphic health images on packets and plain packaging, have no doubt all played a part.

Fri, 13 Jan 2017  |  

After a brief lull, the Turnbull government has resumed its borrowing binge. The government’s borrowing authority, the Australian Office of Financial Management, borrowed a further $1.6 billion this week, which means that government debt today reached a new record of $466.4 billion. See 

When the Coalition won the 2013 election of a platform of paying off debt, the level of debt was just $273.1 billion. This means that in just over 3 years, it has added a thumping $193.3 billion to government debt or close to $5 billion a month. 

Thu, 12 Jan 2017  |  

A friend send through this chart which shows Steve Keen's professional judgment about the house price bubble in Australia. Steve is Professor of Economics at Kingston University in London. Kingston is ranked the 109th best univeristy in the UK -

The chart shows the ABS index of house prices from 2004 to the latest data for the September quarter 2016. Prices have been strong for many years, even with the odd period when prices flat-lined or dipped marginally in 2008-09 and then 2011-12. 

Wed, 11 Jan 2017  |  

This article first appeared on the Yahoo7 Finance website at this address: 


Is the ‘interest rate hike’ scenario coming?

2017 has kicked off with money markets starting to price in interest rate increases over the next few years. That’s right – interest rate rises.

The market appears to be focusing on the good economic news from the global economy, especially in the Eurozone which has proved to be a surprise packet with growth picking up and the unemployment rate falling. The US economy is also is a strong position with unrelenting growth in employment and the unemployment rate firmly entrenched below 5 per cent.

Add to that buoyant commodity prices and an export revenue boom in Australia and there we have the ‘interest rate hike’ scenario that the market is looking for.

As to timing, the current market pricing has a 25 basis point hike to 1.75 per cent priced in around the middle of 2018 and a further hike about six months after that.

A total of 50 basis points of interest rate rises over two or so years, if correct, would certainly take some heat out of the housing market. It would also trim the growth outlook for business investment and risk driving the Australian dollar higher.

Fri, 06 Jan 2017  |  

Here's a story about housing and snake oil.

Back in late 2009, there were two Sydney based couples looking to buy their first first home.

The median house price in Sydney in the March quarter 2010 (ABS data) was $583,000 and the standard variable mortgage interest rate was around 6.7 per cent. Each household was on a combined income of $95,000 a year, which was about average for those living in Sydney.

Couple 1 took the plunge, they had $116,600 in savings, and borrowed the $466,400 or 80% of the value of the house and moved into their median house. The repayments were solid, at $2,881 a month over a 30 year mortgage.

Couple 2 also had $116,600 in savings in 2010 but saw a series of high profile stories from economist Steve Keen, who was warning about a 30 or 40% fall in house prices as the Australian property bubble burst. He reckoned unemployment would exceed 20% and something akin to a Great Depression was almost unavoidable. Couple 2 continued to rent and put their savings in term deposits, fearful of their job prospects and waiting hopefully for the collapse in house prices before buying.

Wed, 04 Jan 2017  |  

This article first appeared on the SMH website: It is Michael Pascoe’s take on the Roberts “sell everything” fiasco. 


The unending game of bulls v bears

Remember the biggest market scare headline from January 2016: The Royal Bank of Scotland's "sell everything!" alarm? And the $10,000 bet Steven Koukoulas tried to make against the RBS analyst? Well now the tables have turned and "The Kouk" is the bear.

Funny thing about the RBS analyst who made the "edge of a cataclysm" call – he seems to have disappeared. After advising RBS clients they should sell everything except high-quality government bonds, Andrew Roberts hasn't turned up on a Google search since. I've gone through several pages of searches but there's been nothing fresh from Mr Roberts since that headline-grabbing advice.

Arguably the world’s biggest bear at this time last year seems to have disappeared, but the bull who most publicly called him out has himself turned into a bear. Michael Pascoe comments.
If he was out to get publicity, he was certainly successful, featuring in stories around the world. Embarrassingly, much of the coverage was uncritical or even barely sceptical. Hey, fear sells.

But not everyone was unquestioning. Stephen Koukoulas of Market Economics, alias The Kouk, went a step further than expressing doubt by immediately calling Roberts out, prepared to bet 10 grand that at least six of 11 markets Roberts indicated as losers would in fact rise.


The Australian stock market is a global dog.

Sat, 24 Jun 2017

This article first appeared on the Yahoo7 web page at this link: 


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


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.