Banks, abetted by government, want you to keep getting crippling mortgages to pay for vastly overpriced land, but the party can't last forever, reports economist Philip Soos.
Over the last 20 years, housing has developed a reputation as a risk-free and high-gain asset. Property remains a coveted asset and can now be purchased with a small deposit; the rest borrowed from banks. It certainly is an attractive investment: since 1996, housing prices, adjusted for inflation and quality, have soared by 141% through to 2015.
While mainstream economists claim there is no free lunch, it is obvious the wealthy are feasting daily on a banquet of economic rents and unjustified privilege. Despite commentators blaming Australia’s minimal levels of government debt and small social welfare state, it is the colossal corporate welfare state that has spiralled out of control, concentrated in the FIRE sector. The economy has been regressively transformed by neoliberal interests into a haven for unproductive parasitic rentiers.
The correction may be postponed for years as the government, captured by the FIRE sector, is resolutely determined to maintain these perverse policies to keep housing prices inflated. From the first Rudd government onward, there is greater awareness among both elites and the public of the housing bubble and its potential for bursting, thereby decimating, unearned wealth and income.
The common refrain of government and FIRE (Banking and Finance) sector economists is that either a housing bubble does not exist or overvaluation is minor. As historical and recent events testify, these responses should be disregarded as they are entirely predictable and self-serving. The research by the small number of economists, who identified the U.S. housing bubble and predicted the GFC are supressed by the vested interests, dismissed as irrelevant and deemed incompatible with Australian exceptionalism.