Will resi really continue to double every 10 years?

[WinstonWolfe]

WW

This is a pretty funny thread! Let me get a few things straight...

Are you:
1) Advocating higher or lower tariffs in Australia?

Are you including the tariffs and visa restrictions on the Australian service sector, such as those on foreign engineers and doctors (esp from developing countries)?

2) Advocating increasing or decreasing immigration into Australia?

I am just trying to be objective, rather then swallow the politically correct line. How about you?

If you have an informed opinion about migration, what do you think is a healthy level of humanitarian migrants to take in, and how long do you think they take to make a net operating surplus financial contribution?

And how many boat people should Australia give residency to per annum?

And do you think Rudd is right to cut unskilled and skilled migration at this time, as he has said he is doing?


3) Advocating exactly what policy measures to stop us all "bidding up unproductive housing using foreign capital"?

A better informed electorate would be the most ideal, with an entreprenurial mindset focused on producing a surplus of goods and services valued not only by ourselves but the world, so that we can export at profit.....with retention of a higher portion of ownership of the means of production. It is a big ask isn't it HE, because most people can't look beyond self interest to concern themselves with this stuff.

4) Advocating Australia stop all economic activity relating to services because that is "unproductive"?

Where did I intimate that? If you aren't sure where services fit with reference to our trade balance, then check the charts I posted earlier.

5) Advocating a "gold standard" for our currency in isolation to the rest of the world?
6) Advocating a "gold standard" for all currencies in the world?

I am interested in the cause of credit bubbles, and the risk they pose to future asset values.
How do you think they can be stopped in the future. What role do you attribute to fiat currency in causing credit bubbles.
What regulations do you think the world should use to prevent another GFC?

7) Advocating exactly what policy measures to increase Australian manufacturing?

I am trying to contribute balance, more informed discussion, and objective data on how sustainable a doubling of property prices will be into the future.

So far you uphold that housing will keep doubling because it always has. Wow, I feel reassured.

Are you advocating Australia is immune to a credit crisis as intense as effected Europe or US? If so, then qualify why

and most important of all:
8) What actions are you currently taking to improve your personal wealth in light of how the world is, rather than how you would like it to be?

I reduced property last year, and have short and medium term positions in commodities. ...

I am investing in intellectual property within public and private health care, that will exploit the growing imperative for cost efficient service delivery.

My views on property are to be active, not passive, as I clarify below.

As you know, each of the first seven options has side political and economic effects that would be most counter productive and we could go on forever with the pros and cons, eg in response to:
1) The (economic) advantages of free trade worldwide for all countries outweigh any benefit for an individual country from higher tariff walls - we should be putting all our efforts in to lower worldwide tariffs not higher...

Then petition your local MP about allowing foreign doctors, specialists, engineers, and accountants be allowed en masse into Australia.....and do away with pseudo tariffs like imposing futher study and exams on them, that most AUssie trained professionals cannot pass.

4) I work for an Australian (ASX) company of circa 30,000 employees worldwide which only provides services - it has no physical assets other than its employees! It makes a motza from those services and repatriates those profits to its ASX shareholders - is this of no value to Australia?

Wow that's a big company. But not as big as the mining services company that a good friend works for, who said yesterday they planned a 30% decline in revenue from FY08 to FY09.

What % of your employer's profit ends in Australian resident hands HE?

I don't know what you had for lunch HE, but I have never said services are unproductive carte blanche. You need to reread what I said with more impartiality and less parochialism. You might then realize how the income your company generates fits into the current account and balance of payments......and then stop misinterpreting what I am saying. Gees I even provided a pretty chart to dumb this stuff down and show the relative contribution of services in export income.

5&6) Gold standards just remove another policy measure from the hands of government to deal with economic upheaval - tying one hand of ours behind our back (while the rest can do what they like) - do we really want to do this? Better in my mind to just realise, as Bill says, that money is the creation of man and act accordingly

Where did I ever say Australia should do the gold std on its own. you would benefit from reading up on the history of fiat currencies and their role in exacerbating credit crises.

...
7) While diversity in income for Australia is a good thing (and manufacturing would provide this), Australia has very few competitive advantages in the manufacturing sector - our wages are just too high. Dropping our wages to compete would not be a desirable outcome. Better for us to design the stuff (provide the services) and China to make them. Win/win for everyone

And what would a fair population for Australia be if we just design stuff and manufacture little? And should we give migrants an IQ test so that if they are only good for unskilled manufacturing jobs, then we should reject them?

- let's stick to what we're good at (eg mining) - putting heaps of money into Australian manufacturing is (speaking generally) a hiding to nowhere...

So what work are the unskilled supposed to do? They can't all become designers.

IMHO Australia is in a wonderful position worldwide. The factors have already been discussed - our only negative is the reliance on foreign capital in the non-govt sector (govt has a long way to go to get anywhere near the US).

What's the US's public and private sector foreign debt?
What's ours?

Given our strength on an international basis there seems to be little risk on this front. Much better than the myriad of risks faced by other countries.

But back to the main point - how do we make money out of how the world is now? Personally, using debt to invest in hard assets like property (with a good cash flow attached mind - "typical" RIPs don't qualify for me) is my method. What's yours?

Two years ago, I did not think there would be significant growth in resi or comm property for years, and that value adds and cash flow were now better pursued. That involves rezoning strategically placed detached resi dwellings into commercial, and increasing the carrying capacity of resi homes by conversion to student accommodation, or meeting poor supply of niche markets like building homes with purpose built granny flats, that are also built to a std that are more likely to be strata-ed when town planning relaxes to accommodate higher densities. These strategies sat well with my conscience and view on the future, in that they would help reduce the cost of accommodation and meet a demand/supply mismatch in suburban commercial property.

 

[WinstonWolfe]

Hi WW,

potentially, houses provide market valued equity that allows Australian Small Business owners to expand operations, which employs people and might even earn export income.

I have done that myself in the past, borrowed against the equity in our house for business (manufacturing) purpose. Without the higher equity in the house due to growth/inflation/whatever the investment in the business would not have occurred.

Most people don't earn a living from the productivity of their house, or their equity, which makes their home -CF, and that cash flow has to be garnered from other capital deployed more efficiently.

And a lot more of it is not. Should only the proportion that earns export income be counted as 'productive' and we close the rest down because it is unproductive?? (OK I'm being silly here )

Well, this is the point i was trying to make re hookers and booze....and I know you know this stuff.....so don't mean to patronize....

In a closed system, the money just goes round and round, without leakage.
Though once we deviate from prioritizing maslow's hierarchy of needs, it isn't long before we run down quantity of beneficial goods and services that give us a survival advantage. i.e. spending 1% of national income on hookers and booze might be sustainable. But if we start taking income away from food production, and spend 20%gdp on hookers and booze, and that leads to heroin and speed use, which contributes to an outbreak of aids and hepatitis, and that chews up even more capital in health costs and lost man hours worked -> reduced quantity and velocity of money flowing through food production, then a lot of people will starve, and a drought will disastrous.

So that's my take......every time money changes hands in a closed system, it is better to have value added in a way that is sustainable. i.e. to produce an excess of desired goods and services that also creates a net increase in the productivity of the production units (people) via better education, health, and entreprenuerial nous.

As it is, GDP doesn't distinguish whether services have a net additive effect....i.e. if we had more car crashes, there'd be more work for hospitals and panel beaters which would lift gdp, in the short term, until there were more people in nursing homes relying on the productivity of others.

If we bought up all of NZ's property, and rented it to NZ'ers does that make it productive for us and non-productive for them??

For us, depends on net ROI. And how that would compare to other investment opportunities. And what growth the property achieved, and what the market valued the houses at when we wanted to sell, or refinance.

For them, would depend on how productively they used the capital that was freed up when they sold their houses. If they invested it in successful solar and battery R&D and brought that to market, and created new pharmaceuticals that they secured worldwide patents on, then they'd be a lot better off.

If the NZ'ers then bought up all our property and rented it to us then it would be productive for them and unproductive for us.

vv

If housing was unproductive to start with then both us and the NZ'ers would be better off buying in the other country.

If housing was as productive over 50 years, as digging up iron ore or making cochlear implants, then why not dump doing ore and implants, and build more houses for the apparent undersupply?

Basically it is a huge floor in economic THEORY that housing is unproductive and because the economics professor believes in the theory you are probably wasting your time in seeking them out.

bye

I think the flaw is in forgetting that the debt servicability required to own a PPR requires an income stream based on capital invested in other pursuits.

If owning a house was as productive as running a business, we could all buy a PPR and not work.

 

[House_Keeper]

Have a look at the earlier chart of Chinese M2, then explain why it has increased above the rate of gdp growth for many years, and whether that is represented transparently in its exchange rate with the USD.

That is true.

However the chinese currency has always been significantly undervalued compared to the USD. (ie, at same purchasing power, the chinese currency should be much higher).

The chinese have been reluctant to revalue their currency, as it erodes their trade advantage.

However, by printing lots of money & tolerating a higher inflation than the US, they are reducing the extend to which the chinese currency is undervalued.

I believe that the chinese currency is still undervalued compare to the USD, so there is still room to print money.

Cheers,

 

[HiEquity]

Are you including the tariffs and visa restrictions on the Australian service sector, such as those on foreign engineers and doctors (esp from developing countries)?

Yes - I agree we are taking skilled people from where they are more needed - I advocate a lowering of all tariff barriers all around, including services. That would mean taking a good cross section of immigrants from other countries, not just the cream.

2) Advocating increasing or decreasing immigration into Australia?

I am just trying to be objective, rather then swallow the politically correct line. How about you?

If you have an informed opinion about migration, what do you think is a healthy level of humanitarian migrants to take in, and how long do you think they take to make a net operating surplus financial contribution?

And how many boat people should Australia give residency to per annum?

And do you think Rudd is right to cut unskilled and skilled migration at this time, as he has said he is doing?

I still don't know whether you support higher or lower than current immigration? I am generally happy with the average immigration level over the last ten years or so. The increases / decreases over the short term are for political reasons but the long term trend averages nicely for me...

On the topic of boat people, I support providing asylum to genuine refugees (a very misunderstood term) in normal Australian society - it is the least we can do. And many boat people do actually fit that category but don't ask how I know that - I'm not asking you to believe it.

3) Advocating exactly what policy measures to stop us all "bidding up unproductive housing using foreign capital"?

A better informed electorate would be the most ideal, with an entreprenurial mindset focused on producing a surplus of goods and services valued not only by ourselves but the world, so that we can export at profit.....with retention of a higher portion of ownership of the means of production. It is a big ask isn't it HE, because most people can't look beyond self interest to concern themselves with this stuff.

Self interest is the basis of our free market economy - nothing to be deplored. I agree that investment in education is worthwhile and entrepreneurial education would be close to top of the priority list. I took it that you were suggesting more immediate measures might have been appropriate - my error.

4) Advocating Australia stop all economic activity relating to services because that is "unproductive"?

Where did I intimate that? If you aren't sure where services fit with reference to our trade balance, then check the charts I posted earlier.

Just checking - your posts have certainly intimated that having a service based economy is somehow inferior to manufacturing for example. I agree there are risks with too much reliance on services, just as there are for manufacturing (eg Detroit).... but I don't see one as worse than another - not everything should be measured in terms of its contribution to our balance of payments IMO.

5) Advocating a "gold standard" for our currency in isolation to the rest of the world?
6) Advocating a "gold standard" for all currencies in the world?

I am interested in the cause of credit bubbles, and the risk they pose to future asset values.
How do you think they can be stopped in the future. What role do you attribute to fiat currency in causing credit bubbles.
What regulations do you think the world should use to prevent another GFC?

I don't think credit bubbles can be stopped without other consequences that are significantly worse. Credit bubbles pervade the whole of economic history - with or without gold / silver standards. The advent of fiat currencies hasn't done much to their frequency or severity compared to the average over the last few centuries from what I can tell...

On the last question, a reversal of Bill Clinton's decision to repeal Glass-Steagall seems to me to be the main contributor but we were about due for a decent bubble / bust anyway. We (I mean the US / Europe really) were too light on in financial regulation for too long - now we risk going the other extreme - I prefer a happy medium!

7) Advocating exactly what policy measures to increase Australian manufacturing?

I am trying to contribute balance, more informed discussion, and objective data on how sustainable a doubling of property prices will be into the future.

So far you uphold that housing will keep doubling because it always has. Wow, I feel reassured.

Are you advocating Australia is immune to a credit crisis as intense as effected Europe or US? If so, then qualify why

I am not predicting future prices for "property". Far too general a topic for my investment goals. I do however see a real probability for inflation to run ahead of IRs for all the reasons it has done so in the past. I don't think we are immune to anything, just better placed than nearly any other developed country at the moment for reasons that have already been discussed in this thread.

and most important of all:
8) What actions are you currently taking to improve your personal wealth in light of how the world is, rather than how you would like it to be?

I reduced property last year, and have short and medium term positions in commodities. ...

I am investing in intellectual property within public and private health care, that will exploit the growing imperative for cost efficient service delivery.

My views on property are to be active, not passive, as I clarify below.

Thanks for sharing!

..... other questions answered above......

So what work are the unskilled supposed to do? They can't all become designers.

They can either be skilled up or employed in our valuable services sector...

 

[yieldmatters]

Basically it is a huge floor in economic THEORY that housing is unproductive and because the economics professor believes in the theory you are probably wasting your time in seeking them out.

Housing is productive - it provides shelter, pride (if you are an owner occupier), entertainment areas etc. I'm just saying it is no more productive now than it was 10 years ago before we bid up the price with foreign money.

Basically I think housing was a front to convince lenders to finance a lifestyle where we consumer more than we produce.

 

[WinstonWolfe]

Housing is productive - it provides shelter, pride (if you are an owner occupier), entertainment areas etc. I'm just saying it is no more productive now than it was 10 years ago before we bid up the price with foreign money.

Basically I think housing was a front to convince lenders to finance a lifestyle where we consumer more than we produce.

Ok, let's presume 98.5% of housing is existing stock. Say total stock is 8860000 dwellings * .985 = 8727100 dwellings.
Anyone want to put a value on that?

Say median house value is 465k and flats are 350k......and houses make up 2/3 stock.

8727100*(2/3*465000+1/3*350000) = $ 3.7 Trillion

Now a good small business runs at least 15% return on capital, after providing an income for the owner, in addition to providing full time work for others.

So what's a 15% return on the 3.7 T in property. about 560 Billion per annum. hey cooolllll....at that rate, we'll have foreign debt paid off in 1.2 years, then be able to have 1/2T parties every year after.

And how many jobs should the 8.7 million 'home businesses' create? how about 1 for the boss and half for Joe Average....that'd be 12million odd......bugger me.....all the unemployment problems solved right there, and enough jobs for everyone from Afghanistan and Sudan.

So there you go, pack up your kit bag, move into a double storied donger, and unleash your house's full productive capacity.


edit: doh......problem guys......Australia only has 1.2T in broad money or M3. So we can't sell our houses for cash. hmmmmmmmm...... anyone want to exchange their house for an IOU?

 

[Aaron Sice]

...















my cat's breath smells lilke cat food......

 

[Aaron Sice]

hmmmmmmmm...... anyone want to exchange their house for an IOU?

let me tell you a story about a man named Jed.
a poor mountaineer barely kept his family fed.
and then one day he was shooting at some food
and up from the ground came a babbling fool

crude it was, black debt, nuthin' owed

well next thing you know ol' Jed's a millionaire
his kinfolk said "Jed made his money from the air!"
they said "Californy is the place you ought to be"
So they packed up the truck and moved to Beverley.

hills that is, swimmin' pools, all non recourse.

Well now its time to say goodbye to Jed and all his kin.
And they would like to thank you folks fer kindly payin' in.
You're all invited back again to listen to my plea
Banks round here aint reknowned fer hospitality

CDOs y'see. the bailout's comin', we'll take your shoes too.

Y'all come back now, y'hear?.

 

[eggnog]

...















my cat's breath smells lilke cat food......

what a coincidence. so does my cat's.

 

[House_Keeper]

Here's a compelling financialsense.com interview with Richard Karn regarding the lack of fiscal responsibility fiat currencies allow, in perpetuating global currency wars.

He reckons China isn't interested in resolving trade issues due to USD manipulation by Obama printing presses. Rather China just want more power to manipulate global trade to their advantage.

Karn reckons the safest way to go is to peg currencies across the world to gold or a bundle of metals.

A very insightful listen.

I listened to the beginning. It was rather disappointing.

The claim that the real reason for the GFC is due to the lack of a gold-backed currency is just wrong. Why did it happen in 2008? It has been like that since 1971. The US abandoned the gold-backed currency simply because it was unsustainable. The economy was growing much faster than they could find gold in the ground, so they had to break the link. The situation hasn't changed. Although fiscal responsibility is essential, going back to the gold standard is not an option. We have to find another way.

Cheers,

 

[WinstonWolfe]

If you seriously want to explore the perils of every country leveraging at different levels, then try reading

Rothbard's "The Mystery of Banking"
it is over 25 years old now, and available for free as pdf.

I listened to the beginning. It was rather disappointing.

The claim that the real reason for the GFC is due to the lack of a gold-backed currency is just wrong. Why did it happen in 2008? It has been like that since 1971. The US abandoned the gold-backed currency simply because it was unsustainable. The economy was growing much faster than they could find gold in the ground, so they had to break the link. The situation hasn't changed. Although fiscal responsibility is essential, going back to the gold standard is not an option. We have to find another way.

Cheers,

 

[lisport]

I'm skipping ahead here (only on page 3) but I wanted to say this before I forget (it'll take all dayto read this thread).

I've been thinking about this for a while. The reason that houses are at the price they are now, is because of the banks. If the banks didn't lend out money, then houses would be much more affordable.

The same is in retail. They have deals or what ever that let you take home the product and pay it off. So you can afford exspecive items.

And when I went to europe to see family, I was told they have 50 year loans, or maybe it was more. And the kids inherit the debt. That might be whats going to happen here, if the goverment lets it. And that might be were the answer lies with what the goverment does, more so than what the public or banks do.

 

[Ausprop]

house prices are also rising because banks won't lend for developemnt and construction. Once house prices have risen to a sufficient level they will be happy to lend at the new and lower LVR. This all makes sense in so far as if there isn't sufficient profit in the developement then the market can't want it too much. With a growing population the prime areas are wanted tho, hence prices will rise, outer suburbs will rise marginally with it, allowing fringe and infill development to occur

 

[steveadl]

And when I went to europe to see family, I was told they have 50 year loans, or maybe it was more. And the kids inherit the debt. That might be whats going to happen here, if the goverment lets it. And that might be were the answer lies with what the goverment does, more so than what the public or banks do.

They have that here now - interest only. Remember extending a loan from 30yrs to 50yrs doesn't really make much difference to your affordability, the interest of x% still needs to be paid each year

eg. monthly payment is $3,000 - interest component at start is $2,800. Switching from a 30yr to 50yr loan may just bring it down to $2,900 per month with a $100 principal component.