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One of the big problems ireland had was that construction was the biggest driver of its economy during the boom years. At its peak in 2005-2006 building construction in ireland accounted for almost 25% of irelands GDP and employed 20% of the workforce. In 2004 their were 80,000 houses or units constructed in ireland, which was half the number that were built in the UK and Australia (the UK and Australia have 15 and 5 times the population of ireland respectivly)
Currently the construction industry in Australia accocounts for 7% of its GDP and 9% of the workforce.
I for one do believe that the housing industry will pop and prices crash, and are prepared for it. Its going to hurt a lot of people, however it will be quite minor compared to the way it hurt ireland.
I agree you cant directly compare Australia to Ireland, however there are lessons to be learned. To add to your comments, Ireland also has a number of large multinationals operating out of Ireland due to the low corporate tax system, however profits largely go off shore but the balance of trade figure looks very healthy on the surface.
One saviour of the Australian property bubble is low unemployment as touted by the government and Real estate industry. Of course we know this is a con as half Australia's unemployed is being hidden on the disability benefit. The other half of the equation is keeping up high immigration to keep demand up for property, however with slowing immigration in the last year..........
I believe the Aus economy will continue to do well medium term and beyond as long as weaknesses are addressed and this type of dangerous fluff is not believed, otherwise the two speed economy will just deepen the wealth divide.
What a terrible piece of fluff, there is no doubt Australia is a successful nation however it has a massive housing bubble ready to pop and we know how that works out, ask California.
A unemployment rate much closer to 9.5% not 5% as that article states, the government is hiding around 500,000 unemployed people on the disability benefit, even the dumbest of economists should be able to work that out.
The two speed economy with the mining industry is hiding the fact that 90%+ of the economy is currently hurting. The 50Bn the government borrowed in stimulus last year has now largely run out.
Australia has a stronger economy than most in the OECD no question but that article is garbage, and even worse its dangerous. The Irish thought they were invincible right up till the moment the housing market went "pop" and there economy fell apart. Ireland still has a massive trade SURPLUS of around 50Bn euro's and yet there economy is still in tatters as the local economy is a basket case (two speed economy).
I know you are passionate about that, and i agree their are at least 500,000 too many people on the scheme. The key however is the participation rate (the % of population aged between 16 and 65 either employed or looking for work).
Australias participation rate at 66.5% is higher that that of the USA at 64.7%, UK 63.%1, Sweeden 64.7%, and France 56.5% (what the?) and slighly less than Canadas. All governments hide true unemployment numbers, they just do it differently.
Last edited by danielsa1775; 06-06-2011 at 06:28 AM..
I agree you cant directly compare Australia to Ireland, however there are lessons to be learned...
Differences are large. Australia's government finances are in much better shape than Ireland. (Lower debt to GDP.) Australia has its' own currency, and the freedom to set currency policy. Australia has more natural resources. Australia is near India and China.
Do Australian policymakers need to show courage and take action to reign in property markets? I think this is an open question. Interest rates are higher and mortgages are recourse. The Australian market is different than the US and different than Ireland. In Australia, government subsidies for homebuyers seem to make houses affordable, but don't they raise prices? This policy may need change, and buyers need to show restraint, but everything else is different, and it's hard to tell.
I don't think Australia is the next California because Australia is too White to be the next California. Australia is 92% White while California is only 40% White.
I don't know why you would want to emulate California. As New York State did, they took their prosperity and flushed it down the drain with nanny state laws, huge overspending and padding the pockets of "public servants" with outrageous pensions and pay. Businesses are fleeing the state, people are fleeing the state. California is a joke here in the USA.
This article is hilarious stupidity written by someone high up in some ivory tower somewhere, probably they've never even been to Australia or California or even had a "real" job or knows anything of value. A first year journo student could have written better.
Usually once you see SoAndSo is the NEXT Whatever, you know its the end times for them. I hope Australia enjoys the good times, cause when the next commodities bust comes, so goes Australia. And it will happen, it always does.
Once Mongolia goes full steam with it's iron ore mines among other minerals, as Mongolia has a motherlode of goodies, Australia's iron ore days are numbered in terms of the scale and scope of it's mining operations.
I think Australia has a lot of potential and possibilities and they are doing well, but the housing boom is over inflated and the commodities run will end someday. Wouldn't take it for granted.
I don't think Australia is the next California because Australia is too White to be the next California. Australia is 92% White while California is only 40% White.
Ture however both are immigrant dependent and have around the same % immigrant population, where the immigrants come from should have little relevance to the issues discussed in the article.
Last edited by danielsa1775; 06-06-2011 at 10:39 PM..
Differences are large. Australia's government finances are in much better shape than Ireland. (Lower debt to GDP.) Australia has its' own currency, and the freedom to set currency policy. Australia has more natural resources. Australia is near India and China.
Do Australian policymakers need to show courage and take action to reign in property markets? I think this is an open question. Interest rates are higher and mortgages are recourse. The Australian market is different than the US and different than Ireland. In Australia, government subsidies for homebuyers seem to make houses affordable, but don't they raise prices? This policy may need change, and buyers need to show restraint, but everything else is different, and it's hard to tell.
The government maybe debt free, but the household sector isn't debt free; not by a long shot. Infact at the moment we have one of the most indebted household sectors in the world. It's heartening to see that over the last few quarters households have actually been deleveraging, and, wait for...SAVING!
The problem with government subsidies for first home buyers is that they haven't actually made housing more affordable, all they have done is lined the pockets of vendors. The first home owner grant was just used to lever up an extra $100-150k. So houses became more unaffordable.
I actually just spent the afternoon at a property price debate in Sydney. The general consensus, even from the guy from the HIA, is that property prices aren't going anywhere fast. The easy money is over.
The problem with government subsidies for first home buyers is that they haven't actually made housing more affordable, all they have done is lined the pockets of vendors. The first home owner grant was just used to lever up an extra $100-150k. So houses became more unaffordable.
I agree with this. But, other than reducing or eliminating the subsidy, what else could be or should be done? If people start to see reason and fear a decline in prices, the overpricing of property issue should resolve itself gradually.
The point is that this is a little hazard for Australia, but not really anything close to US or the so-called PIIGS.
High household debt could eventually lessen consumer spending, a negative for businesses, but not by much. Only if the banks were not really banks, and instead shadow banks hiding obscene derivative trades off balance sheet, then they would have issues like the US.
I think that the risks in Australia revolve around commodity prices and China. Some think resource demand will only grow, and China will only grow, and those on the supply side of commodities will prosper for quite a while. I think there will be setbacks, but only brief ones, like 6 month recessions, for the next 10-20 years.
I agree with this. But, other than reducing or eliminating the subsidy, what else could be or should be done? If people start to see reason and fear a decline in prices, the overpricing of property issue should resolve itself gradually.
The point is that this is a little hazard for Australia, but not really anything close to US or the so-called PIIGS.
The problem with this is enormous. Remove the subsidy, and remove negative gearing. If there is really a shortage of dwellings (which I don't believe) then keep negative gearing only on new homes.
I'm not sure how you can say that it is a small problem? Australian mortgage debt is higher than it ever was in the US (see here), Interest payments are way higher (see here), look at what the average first home buyer has to borrow on his/her first mortgage (here), and the percent of the average wage that the payments on the average mortgage would consume (here). You can't really be arguing that it's just a benign problem that will work it's way through the system. The system is articially holding prices up.
The only people who benefit from house prices are baby boomers. What's worse is that people under 40 are being asked to a) pay for the baby boomer generation's retirement, through inflated house prices (for most boomers the home is their largest retirement asset) and then b) being told they also need to save for their own retirement through superannuation.
Quote:
Originally Posted by mtta
High household debt could eventually lessen consumer spending, a negative for businesses, but not by much. Only if the banks were not really banks, and instead shadow banks hiding obscene derivative trades off balance sheet, then they would have issues like the US.
High household debt is already reducing consumer spending. For the better part of the last 10 years Australians spent over 100% of their income (ie they used debt to fund consumption). I'm not sure why you believe banks need to have derivatives on or off their balance sheets to have the same issues with asset quality? Reckless bank lending and inflated asset prices (albeit mainly in commercial property) was what sent Pyramid, State Bank of SA, and almost Westpac broke in the early 1990's. There is no bigger beneficiary to this asset price bubble than bank balance sheets, and as they increase their asset base they are able to lend more. Heck if Gail Kelly hadn't bought out her former employer, St George, at the peak of the GFC it's likely it would have had a short term liquidity crisis (read: bank run). The only reason the government was happy to let the 5th biggest bank be bought by the 2nd biggest was because it feared a liquidity crisis.
Quote:
Originally Posted by mtta
I think that the risks in Australia revolve around commodity prices and China. Some think resource demand will only grow, and China will only grow, and those on the supply side of commodities will prosper for quite a while. I think there will be setbacks, but only brief ones, like 6 month recessions, for the next 10-20 years.
I know you are passionate about that, and i agree their are at least 500,000 too many people on the scheme. The key however is the participation rate (the % of population aged between 16 and 65 either employed or looking for work).
Australias participation rate at 66.5% is higher that that of the USA at 64.7%, UK 63.%1, Sweeden 64.7%, and France 56.5% (what the?) and slighly less than Canadas. All governments hide true unemployment numbers, they just do it differently.
Hate to burst your bubble
Those 800,000 (500,000 to many) on Disability are REMOVED from the total workforce number which obviously makes participation look a lot better, those people are "officially" unable to work.
Covered that in a recent thread
Add 500,000 onto the total workforce and re-run your calculations.
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