"If housing was unaffordable in Sydney nobody would be buying it."

Those were the now-famous words of the Federal Treasurer, following the latest news of escalating house prices in Sydney and Melbourne. While the head of his own department, John Fraser, and the Assistant Governor of the Reserve Bank, Christopher Kent, vehemently disagree (and have little political motivation to hold such and opinion), this political football is still being booted from one end of the park to the other.

 

 

The latest volley in the war of words comes from two renowned housing economists, Lindsay David and Philip Soos, who have published Australia: Boom to Bust about the current state of the domestic economy. The new information comes via their submission to the Federal Government’s 2015 Inquiry into Home Ownership. The pair is adamant that we are in the middle of a horrendous bubble, and that such a situation is relatively easy to recognise.

Only a couple of housing market metrics is needed to identify a bubble, and are now considered commonplace when investigating the housing market: nominal price to inflation, price to income and price to rent.

The 30-odd pages of data and analysis make for interesting reading. Within the 38 recommendations, some would certainly look familiar to Mr Hockey:

• Reform stamp duty tax.
• Reform housing tax expenditures.
• Quarantine negative gearing.
• Removal of all first home buyer subsidies
• Prevent superannuation lump-sum withdrawals.

 

 

However, the sparks really start flying when we hit the submission’s conclusion:

The tolerance of housing policies that maintain bubble-inflated prices, ignore objective evidence, contradict the recommendations of earlier inquiries and erode housing affordability are entirely predictable. Property ownership and speculation has been elevated to the status of religion in Australia, compounded by a perverse culture of homeowner entitlement driven by a degenerate taxation system that penalises work and effort while rewarding unearned wealth and income.

So, no need to read between the lines on that one, is there?

(Australia: Boom to Bust)