In Eight Years Houses Will Be Free According To Economist!

“If that continues for 12 months, then that’s going to be more than a 12% decline.”

Adam Creighton

Yes and if it continues for eight years, houses would be free.

As I wrote a few months ago, we humans have a dangerous capacity for constructing a narrative and part of that narrative is to see things as a trend rather than a single event. Yes, sometimes you get a few single events teaming up and showing a likely direction, but there’s a danger if you presume that it’s definitely an indication of the future.

Rather like the football captain who calls out after his team snaps its first goal of the day: “The comeback starts here, fellas!“, ignoring the 86 point deficit and the fact that there’s less than a quarter to go. (I could have quoted Tony Abbott’s: “Good govenment starts today,” but that wasn’t even a single moment, let alone the beginning of a trend…

To be fair, Mr Creighton did say “if” but why should I let him of the hook when he’s said so many stupid things in the past? I remember him accusing the “left” media of lying when they reported what Trump actually said, rather than realising that it wasn’t what he meant and reporting his words rather than his thoughts was dishonest.

I once read a quote that said that an economist was a person who was paid a large amount of money to explain why they were wrong. This is not accurate in the case of Adam Creighton; he is paid to explain why his and the IPA’s view is still correct in spite of all evidence to the contrary.

Let’s look at how the future will play out in Australia…

I should add at this point that making predictions is usually dangerous and the gods have a way of making one look silly but fortunately we live in an age where looking silly and being wrong seems to have no long term negative effect on one’s career. Take John Howard… (no, I’m not going to add the “please”… that’s a very old joke… but now, so is John!) Yes, he did win a number of elections but he’s also the only living PM to lose his seat at a general election, so why do the Liberals still think that he’s a good person to ask for strategic advice nearly twenty years later?

Anyway, at the moment there is a very strange zeitgeist: We have everyone in the media talking about the disaster of the changes to Capital Gains and Negative Gearing and how this is doing something terrible to the price of houses.

Ok, let’s leave aside the consistent narrative of the past few years that house prices were too high and that Australia had the highest house prices in the world relatively speaking… I don’t expect anyone in the media to remember what they were saying at the start of a news bulletin let alone a few months ago.

No, even though they’re yet to seek out what Melbourne cafe owners think, the media is consistently asking for comment from the Opposition, the real estate industry, landlords, and the occasional first home buyer who is either worried about negative equity or just relieved that they got into the market. We are constantly being told that our home – our number one asset – is falling in value and that it’s a terrible thing.

Now speaking personally, I haven’t actually checked the recent value of my home in spite of all the very kind offers for a valuation from Calvin and Kevin and others which land in my letterbox on a daily basis, but I’m going to presume that it’s about $1,100,000. If it’s dropped by one percent in the last month it’s only worth $1,090,000 and if this trend continues, it’ll eventually reach a point where I can afford to buy it again… which, of course, I don’t need to do because I bought it last century when my aspiration to live in a million dollar home involved moving into a much more luxurious house in a much better suburb.

But that’s just me. I imagine people who have bought more recently probably feel worried that if they decide to sell up and live on the streets means that they’ll still have quite a lot owing on the mortgage… It’s enough to make them continue with the repayments and try to avoid the excellent strategy of sleeping rough thus avoiding energy bills as well.

So, in reality, most people are likely to stay in their houses, many landlords are likely to continue with their current properties because of the grandfathering arrangements, and clearance rates are likely to rise because the only people putting properties up for auction will be willing to meet the market. At some point in the future, house prices will start to rise again. Maybe slowly, maybe quickly.

At this point, you can cue the media to give the Opposition lots of air time for their new attack: The changes didn’t really help bring down the prices and first home buyers haven’t been helped!

Of course there is the other question that seems strange to me: Why are the real estate industry and investors being so helpful in talking down the market? I mean politicians I can understand, but if you’re in the business of selling, surely you don’t want people to think that it’s a bad time to buy! If I were about sell a whole collection of artworks, I wouldn’t be saying that nobody’s buying art at the moment and I think that this is because of the CGT changes and I’m getting rid of these because they’re practically worthless!

Still, I’m not an economist, so nobody pays me to explain why I’m wrong, which I suppose means I need to try and get things right!