05
Dec
2015
Contra Krugman Episode 12: Krugman Buckles and Admits Regulation Bad
Here we had no choice but to agree with Krugman’s op ed and simply elaborate. Tom and I ended up taking swipes at each other, to fill the snark vacuum.
You could have spent a bit more time going into the workings and history of FNMA, GNMA, etc. Certainly they had an influence on housing prices, although there’s lots of argument on that, but I think there’s a fairly self-consistent Austrian picture on offer.
Good chart by the way with the three cities, however there’s more to it than just regulations throttling the supply, because the cities that went up a lot, were also the ones that crashed a lot when money got tight. That suggests a combination of local regulations and Ponzi MBS style finance… possibly even local authorities going out of their way to attract finance by structuring the regulations in that direction.
I’m kind of interested because of where Sydney prices have gone, and clearly government is part of the picture. Lately there have been five major forces at work:
[1] Immigration… population growth in Sydney has been unusually high for at least the past decade, and a large fraction of this is immigration. You aren’t supposed to look, but just walking in the streets it’s very obvious how the demographics have changed.
[2] Hot money coming in from China… with government crackdowns left right and center, people are moving their money to safe havens and buying / building in Sydney seems to be where that money is going (also London, and other places).
[3] Building apartments is at an all time high, razing industrial estates or old suburban houses to put up largish apartment blocks (like of the order of 50 to 100 dwellings at a site, I would guess, arranged in various ways).
[4] Releasing new land is happening very slowly, but government has decided that suburban sprawl must be stopped. There’s been a conscious decision to build up and not out, and perhaps there’s some free market justification but really around here free market doesn’t happen in real-estate.
[5] Official interest rates are still (gradually) falling, the Reserve Bank of Australia doesn’t seem to have much courage to raise rates, and although mortgage rates are still quite a lot higher than “official” rates, we have seen mortgage rates come down.
Of course, I want to know the right time to sell, because prices haven’t crashed here (yet), and I think [1] is highly political, difficult to predict, but maybe going to throttle back a little bit. [2] is also highly political but I would say that China has some problems with too much debt leverage and worse problems with a government that wants to prevent the inevitable fallout from loans that cannot be paid… my guess is that the hot money will speed up for a while, and then slow down.
With regards to [3] they really are building a lot of supply, these things are going up everywhere. I just can’t believe the price on apartments will stay high. On the other hand, not everyone wants to live in an apartment.
When will the RBA raise rates? Dunno, the old bet against the central banker game… a crappy game to play, but it’s the one on offer.
Bob, thanks for the link…http://www.themoneyillusion.com/?p=31343#comment-454829
Sumner thinks, “Hey look at Australia, seems to be OK”
When I look I think, “Oh crap, Australia is the outlier, she’s gonna blow!”
Question is when and how… as ever… to be honest I think Glen Stevens is past his prime. He’s done some good work, and I respect him for it but coming up to 10 years in the hot seat and he will not pull anything out of Volker’s playbook, that’s for sure. Hasn’t got it in him. To be honest, a retirement announcement is probably coming soon.