‘THERE WILL BE JOB LOSSES’: ABC Managing Director confirms staff to go following Budget Freeze

THE ABC had found $17 MILLION in savings to date … but as to the

government …

IS this how you silence your critics?

IS this a slow death for the national broadcaster … gradual strangulation?

IS this payback? Revenge for having the audacity to question the government’s agenda … that being so ideologically driven it is somehow not okay to seek answers that explain their ‘reasoning’ …

‘There will be job losses’: ABC managing director confirms staff to go following budget freeze

By political reporter Stephanie Dalzell

23 OCTOBER 2019

Two men and a woman wearing formal clothing sit in front of microphones in a wood panelled room.

PHOTO: ABC managing director David Anderson told Senate Estimates he could not say how many positions would be cut. (ABC News)

RELATED STORY: ABC should sell Sydney, Melbourne and Brisbane properties and move to regions, senator says

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RELATED STORY: Former ABC boss Michelle Guthrie gets $730,000 in out-of-court settlement

Some ABC staff will lose their jobs as the broadcaster deals with the Federal Government’s budget freeze, the national broadcaster’s boss has confirmed.

Key points:

  • Mr Anderson did not say how many staff or from where in the ABC the jobs would be cut
  • He told Senate Estimates consideration would be given to keeping regional and remote jobs
  • The Government has frozen the ABC’s budget for three years, at a cost of $83.7 million

The Australian Broadcasting Corporation’s managing director David Anderson made the comments in Senate Estimates on Tuesday night, under questioning about the impact of the Coalition’s budget decision.

“There will be job losses,” Mr Anderson said.

“It’s not something I can quantify at this point in time, there’s still more work to be done.

Some of it relates to people’s employment, some of it does not — efficiency comes in many forms.”

The Federal Government last year announced it would freeze the ABC’s annual funding at the same level for three years — a move that will cost the broadcaster $83.7 million.

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The cut will be phased in over three years, starting with an almost $15 million cut in 2019-20, about $28 million in 2020-21 and just over $41 million in 2021-22.

Mr Anderson acknowledged it was a period of uncertainty for staff.

“For me to be able to say ‘yes I believe there will be staff losses’ — but not to be able to say how many, or where from — I certainly appreciate is quite uncertain,” he said.

Mr Anderson said the organisation had found $17 million in savings to-date but more work needed to be done.

“I don’t think we’ll be able to close that gap without losing staff.”

However, he told the committee consideration would be given to keeping jobs in regional and remote areas.

“One of our priorities for the future is certainly to remain as local as possible,” he said.

“Our role is to reflect the culture and community of the country back to itself.

“You struggle to do that unless you are local.”

Contact Stephanie Dalzell

SOURCE: https://www.abc.net.au/news/2019-10-23/abc-boss-confirms-staff-to-go-following-budget-cuts/11629336

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THIS GOVERNMENT has abandoned Economic Logic … and no one seems willing to Call them on it!

WT ****!

*It is time to ditch the surplus mania and force our government to stop worrying about some political con-job about economic management and to start facing up to the five years of falling living standards that have occurred under their watch.*

This government has abandoned economic logic – and no one seems willing to call them on it

Greg Jericho

Greg Jericho

The Coalition needs to face up to the fact that living standards have been falling for five years under its watch
 @GrogsGamut

Sun 20 Oct 2019

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Scott Morrison and Josh Frydenberg
 ‘Everyone should tattoo this to their eyeballs: the only reason for a budget surplus is to slow the economy in order to stop inflation growth from rising.’ Photograph: Tracey Nearmy/Getty Images

The biggest con in Australian politics is the belief that a budget surplus not only matters, but that it demonstrates good economic management.

Our lives would be improved overnight if the political debate in this country could ditch the surplus obsession. The pertinent question at the moment is not whether a budget surplus will be delivered this financial year, but why on earth would you aim to do so?

Why do we need a budget surplus? It is not a question that gets asked too much – certainly not during the election campaign just passed, where both major parties argued over who had the bigger surplus.

The typical answer you get given is some vague notion of living within your means, saving for a rainy day, needing to pay down debt.

It’s all simplistic babble spoken by politicians with next to no economic logic in order to convince voters that somehow they are good at managing the economy – and for the most part it is taken as given by journalists.

 Parliamentarians deserve our wrath for 30 years of inaction, not climate protesters

Greg Jericho

Greg Jericho

 Read more

The balance of the budget tells us very little about the management of the economy.

Liberal Party MPs would have you believe that the mining boom during the 2000s occurred because of the budget surplus. In reality the stonking amounts of revenue that flowed in to the government’s coffers during that time meant it was almost impossible not to run a surplus.

In 2000-01 government revenue reached 26% of GDP – a level greater than the amount of spending done by the Rudd government in 2009-10 when it embarked on its massive stimulus program to offset the impact of the GFC.

If the Rudd government had enjoyed the same level of revenue that the Howard government routinely did, it would have at worst had a deficit of about $3bn – rather than going into a deficit of 4.2% of GDP, or $54bn.

But of course, if it had revenue of that size it would not have needed to create a massive stimulus in order to keep the economy going.

When you get down to it, the only outcome that really matters in the economy is household living standards.

We want low unemployment, high productivity growth and all other things because we want it to lead to better living standards.

 Scott Morrison is trying to turn himself into the ocker Trump – Australian media beware

Greg Jericho

Greg Jericho

 Read more

During the mining boom, you could be forgiven for thinking that a surplus was a sign that the economy was being well managed – household disposable income was growing at around 4% a year in real terms

Now, government revenue is growing off the back of high commodity prices, but our economy is struggling and household living standards are falling.

Over the past three years household living standards have fallen by levels more akin to a deep recession than a period where a government should be seeking to take the heat out of the economy with a budget surplus.

Because everyone should tattoo this to their eyeballs: the only reason for a budget surplus is to slow the economy in order to control inflation.

This happened during the mining boom – but so addicted was Howard to cutting taxes and providing tax concessions that the budget surpluses were actually too small to stop inflation growth from rising.

And thus the Reserve Bank raised interest rates 12 times in six years in order to slow things down.

Back then the Howard government was content for this to happen because they believed they would always be able to sell the line that interest rates would always be lower under a Liberal government.

 Read more

Now we are in the opposite situation. Inflation barely has a pulse, the overall economy is growing slower than it has since 2001, and the private sector is growing slower than at any time since the 1990s recession.

The Morrison government is mostly content to let the RBA keep cutting rates to stimulate the economy because it believes it will be able to sell the line that it is doing a good job because it has delivered a budget surplus.

The last time we had a budget surplus was in 2007-08, when the RBA raised the cash rate four times, from 6.25% to 7.25%.

*So far this financial year the RBA has cut the cash rate three times, from 1.5% to 0.75%.

*That is not a sign the economy needs slowing.

The last time the RBA raised the cash rate was in November 2010 – a time so long ago Steve Smith had only played in two test matches, Novak Djokovic had won only one grand slam title and Australians had yet to see the new British TV series, Downton Abbey.

During that entire time we have been obsessed about trying to get back to a budget surplus and yet also during that time inflation growth has remained weak, and household living standards have stagnated.

But such has been the potency of the surplus con job that should the government actually face reason and dare to utter the words “stimulus,” most news outlets would be quickly running with the failure to deliver a surplus, and the ALP as well would quickly get on board attacking the move.

And we would continue this awful economic debate where we discuss things through a frame that has been irrelevant for more than a decade now.

*At some point, someone in the ALP or LNP is going to twig that the economy has changed since the GFC – what seemed correct then is most definitely not now.

*It is time to ditch the surplus mania and force our government to stop worrying about some political con-job about economic management and to start facing up to the five years of falling living standards that have occurred under their watch.*

• Greg Jericho writes on economics for Guardian Australia

Scott Morrison and Josh Frydenberg

SOURCE: https://www.theguardian.com/business/grogonomics/2019/oct/20/this-government-has-abandoned-economic-logic-and-no-one-seems-willing-to-call-them-on-it?CMP=Share_iOSApp_Other&fbclid=IwAR1HQsTX2OKdabQfrScgsZxBH0ssytc9p6uFTywFGYV12_Nc9R6-7bzPoqg

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BAD HONEYMOON: SCOMO NEWSPOLLS …

It’s not hard to see why

  • falling living standards;
  • interminable per capita recession;
  • falling real wages;
  • force fed mass immigration;
  • CCPs silent invasion of universities, Canberra and the Gladys Liu affair;
  • endless energy crisis;
  • house price bubble yoyo.

WHERE’S LABOR?

Bad honeymoon. ScoMo Newspolls bang someone else

By Houses and Holes in Australian Politics

October 21, 2019 | 15 comments

It is a worry for the Government. It is much less secure than Labor is making out (for no apparent reason), via The Australian:

The Coalition has maintained its lead over Labor despite pressure over the economy and criticism of drought relief for farmers as ­Anthony Albanese’s approval ­ratings sink to their lowest since he came to the job.

An exclusive Newspoll conducted for The Australian shows no change in the headline numbers for the government, with the Coalition holding a two-party-preferred lead of 51 per cent to 49 per cent.

It’s not hard to see why:

  • falling living standards;
  • interminable per capita recession;
  • falling real wages;
  • force fed mass immigration;
  • CCPs silent invasion of universities, Canberra and the Gladys Liu affair;
  • endless energy crisis;
  • house price bubble yoyo.

I can’t recall a new Government honeymoon this weak. Perhaps the only reason it is not as issue in the press is that its lost all faith in polls itself.

If Labor had a brain they’d be making hay. Scratch that, they’d be in power.

Scott Morrison

Photo: The Guardian

SOURCE: https://www.macrobusiness.com.au/2019/10/bad-honeymoon-scomo-newspolls-bang-someone-else/

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GITTINS: ON SCOMO Committing Economic Suicide …

Holding the line: Prime Minister Scott Morrison and Treasurer Josh Frydenberg.

Gittins: Scomoberg committing economic suicide

By Houses and Holes in Australian budgetAustralian EconomyAustralian Politics

October 21, 2019 | 6 comments

Via Ross Gittins today:

Scott Morrison’s problem is that he gets politics – and is good at it – but doesn’t get economics.

*The Prime Minister doesn’t get that if he keeps playing politics while doing nothing to stop the economy sliding into recession, nothing will save him from the voters’ wrath.

Neither he nor Josh Frydenberg seem to get that if we endure another year of very weak growth before they pop up next September boasting about their fabulous budget surplus, no one will be cheering.

…Frydenberg’s argument about the need to “reload the fiscal canon” ready for the next downturn makes perfect sense – provided you’re paying back public debt at a time when the economy’s growing strongly and, if anything, could use a bit of slowing to ensure inflation doesn’t get away.

That’s not us, unfortunately.

…My bet is Morrison and Frydenberg will eventually panic and take stimulatory measures (probably a lot of them), but they’ll come too late in the piece to stop confidence unravelling, with punters tightening their belts as businesses lay off staff.

That’s my read too, reinforced by more blather from the L-plate treasurer today:

Treasurer Josh Frydenberg has left Washington upbeat about challenges facing the global and domestic economies, including a “more positive” outlook for a US-China trade fix, even as the IMF warned Australia must tackle tax reform and that next year’s budget may need to tap some of the surplus to stimulate growth.

Mr Frydenberg said his message was “there’s no need to panic” and that the global economy “remains sound”, after three days of intense talks with counterparts from around the world, including US Treasury Secretary Steven Mnuchin, UK Chancellor of the Exchequer Sajid Javid and India’s Nirmala Sitharaman.

“Despite the challenges facing the global economy I found that people were more optimistic than not about the ability of the economy to get back on track,” he told The Australian Financial Review before boarding his flight back home.

So, let’s not assess the Aussie economy on its merits. Instead let’s deploy a false binary in which we shouldn’t “panic”. Who is suggesting that we panic? Nobody. Just about every economist I read is suggesting we should boost infrastructure spending, Newstart, etc. It’s hardly panic. It’s decreasing the fiscal drag when you’ve got weak growth. To wit, today:

The Morrison government has spent only $2.2 million out of a $3.5 billion infrastructure fund designed to connect key ports, airports and other transport hubs around Australia.

The “roads of strategic importance” scheme, which had its funding boosted by a further $1 billion in the 2019-20 budget after being announced 18 months ago, has only started construction on the $2.2 million upgrade to the Murchison Highway in Tasmania.

As Gittins says, what will happen is that Recessionberg will panic when he leaves it too long. Moreover, because the next accident coming to Australia is a terms of trade crash (that has already begun), which is largely driven by market adjustments in bulk commodities not slowing global growth anyway, Recessionberg will panic just as the viability of his next wave of tax cuts come into question. This is poor budget management, poor economic management and poor politics.

But at least the rictus treasurer will smile all the way through it.

SOURCE: https://www.macrobusiness.com.au/2019/10/gittins-scomoberg-committing-economic-suicide/

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From ‘The Liargraf’ : ALP ‘denied Bill Shorten’s election campaign cry for help’: report

IS ‘CRITICAL THINKING‘ being taught in Our School system any more … or if it is perhaps the power of the Press Moguls has diminished it?

The opening sentence in this report by the ‘STAFF WRITER’ rings alarm bells for us at CAAN …

‘A report has claimed that former Labor leader Bill Shorten wanted his election campaign to ‘soften’ his image – but instead, the party decide to ‘confuse’ voters with unpopular policy detail.

Compare the pair … Bill Shorten and the Ad Man with the Cap? The Ad Man who wrote the policy for the developer lobby, the Property Council of Australia, as National Manager of Research and Policy from the age of 21 to 26 … and the property lobby runs through his veins, expect the Coalition to throw more support at FHBs for the housing market‘.

Image may contain: one or more people

From the cap to wearing a Crown of thorns …

View:

DEVELOPERS summon First Home Buyer patsies

https://caanhousinginequalitywithaussieslockedout.com/2019/09/09/15528/

Then Newscorp writes:

‘but instead, the party decide to ‘confuse’ voters with unpopular policy detail.’

Is this ‘Construct’ the consequence of the Coalition ‘fear and lies Campaign’ about an alleged Labor Party death tax; the Franking Credits which were not to affect pensioners but the Rich Listers; the changes to negative gearing were about encouraging the building of ‘new homes’, and to grandfather investment in ‘established homes’ … to open the housing market for First Home Buyers …

WAS this so-called unpopular policy a consequence of this ‘fear and lies Campaign’ … because the Liberals in fact had no policies! Was it The Libs who called for details, it would seem, to conceal the fact they went to the Election without any policies?

Until the week prior to the Election with the launch of the Coalition’s FHB scheme when Scomo said:

“We want to see more first-home buyers in the market, absolutely, and we don’t want to see people’s house prices go down” ….

????????????????????

PERHAPS undertake some ‘critical thinking’ about the remainder of the text? Sadly from the Mogul’s print media the misinformation spreads across television networks, polls, WeChat, UTube, and our social media … to become ‘Gospel’!

ALP ‘denied Bill Shorten’s election campaign cry for help’: report

A report has claimed that former Labor leader Bill Shorten wanted his election campaign to ‘soften’ his image – but instead, the party decide to ‘confuse’ voters with unpopular policy detail.

Staff writer, News Corp Australia Network

October 19, 2019

DAILYTELEGRAPH.COM.AU1:43Who will be the next Labor leader?

With the Labor Parties election loss and the announcement that Bill Shorten will step down as leader.

Former Labor leader Bill Shorten urged the ALP to help him soften his image during the election campaign but was turned down, in one of several disagreements between the leader and the party that have emerged ahead of the release of a review into the election defeat.

Scott Morrison and his wife Jenny celebrate his shock win at the Coalition’s official election night function in Sydney. Picture: Gary Ramage

The Weekend Australian reports that the review will say that Labor’s campaign was poorly organised, contained confusing messages and unpopular policies, as well as an unconvincing advertising campaign.
Mr Shorten’s personal unpopularity will also be highlighted as a key reason for Labor’s shock defeat to Scott Morisson in May.

CAAN: WHO owns ‘The Daily Telegraph’, ”The Australian’ and 9 News from where it would appear the reports of ‘Bill Shorten’s alleged personal unpopularity, and an ‘unconvincing advertising campaign’ emanate from …

Bill Shorten and wife Chloe Shorten during his concession speech after the election defeat. Picture: Getty
Bill Shorten and wife Chloe Shorten during his concession speech after the election defeat. Picture: Getty

The post-election review will say the ALP should have worked harder to shield Mr Shorten against attacks from the Coalition on his character – even though Mr Shorten raised this as a campaign priority.

CAAN: ‘The Herald Sun’ where this article, ‘Bill Shorten accepts responsibility for shock May election defeat’ was published is also owned by Rupert Murdoch, and is a subsidiary of News Corp Australia with a little critical thoughtone may begin to question the veracity, the truthfulness of this report by this subsidiary of the Murdoch Media …

Former Labor leader Bill Shorten has taken full responsibility for May’s devastating election loss. Picture: David Caird

Mr Shorten wanted the ALP campaign to counter his low personal popularity with direct-to-camera advertising, but this was not supported.

CAAN: With daily reports of the alleged ‘low personal popularity’ of Bill Shorten … was he being targeted by Murdoch? Repeated often enough … that it must be true … that it has become Gospel ?

… as CAAN Page Admin learnt early in its career … it is the Media that wins elections …

Personal attacks against the then Opposition leader by Scott Morrison concerned Mr Shorten to the extent that he asked Labor national secretary Noah Carroll to respond with a negative advertising blitz on the Prime Minister. But the answer was no, The Weekend Australian reports.

Labor’s six-person review team will meet in Canberra on Sunday to begin finalising the report.

Scott Morrison defied the views of many pundits when he won the election. Picture Gary Ramage
Scott Morrison defied the views of many pundits when he won the election. Picture Gary Ramage

According to The Weekend Australian, the review team will find that voters were confused by Labor’s excessive campaign messages and they disliked the party’s policies on taxation and climate change.

CAAN: According to the Gospel of ‘The Weekend Australian’ that Australian voters were confused by Labor’s campaign messages, but how much more excessive were the ad campaigns, and fear and lies campaigns of The Coalition? Funded by the Big End of Town and was it approved by our Big Neighbour to the North?

“Double agent” Gladys Liu linked to OBOR push

Labor’s social media and advertising response to attacks on policies was ineffective and the campaign was poorly organised, with staff unclear about who was responsible for what during the campaign.

CAAN: Give some critical thought to the veracity of this. Perhaps Labor needs to attack The Coalition more!

The review was ordered in the wake of Labor’s disastrous result in May when it received a primary vote of just 33.3 per cent nationa­lly, with especially poor outcomes in Queensland and Western Australia.

CAAN: The Election was close;  the Coalition won with a slim majority of 77 seats in the Lower House, one more than it needs to govern in majority. That’s all!

As Ms Liu holds the Morrison Government’s majority in the palm of her hand so here we are.

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Was the Labor loss in Queensland largely due to the $80M Ad campaign of Clive Palmer and his UNITED AUSTRALIA PARTY? Whereby it appears he deceived many into the belief he would make Australia great and reduce taxes etc … Clive was not elected but his Party preferences went to the Coalition!

New Labor leader Anthony Albanese. Picture: AAP
New Labor leader Anthony Albanese. Picture: AAP

Labor’s six-person review team will meet in Canberra on Sunday to begin finalising the report as the party debates what its policy agenda should look like under new leader Anthony Albanese – especially on climate change and emissions targets, an issue dividing the party.

CAAN: Published in The Daily Telegraph; owned by Murdoch …

Although the party ran a limited “soft” advertising campaign featuring Mr Shorten, his wife Chloe and their family, the former leader thought there should be more of this.

Mr Shorten wanted the campaign to focus more on softening his image. Picture: Alex Coppel.
Mr Shorten wanted the campaign to focus more on softening his image. Picture: Alex Coppel.

But the campaign team pushed on with highlighting Labor’s positive policy agenda rather than tackling Mr Shorten’s electoral unpopularity head on.

CAAN: At CAAN we believe Labor was moving in the right direction concerning Housing Affordability, by encouraging investors to invest in new property to open up the established housing market for First Home Buyers, more benefits for HealthCare, Education, and tackling Money Laundering in our domestic housing and more!

Yet the situation was dire: despite a mild popularity increase during the campaign, analysis of Newspoll results shows Mr Shorten had a negative net satisfaction rating for more than four years – worse than any other opposition leader.

CAAN: Again an Analysis from NEWSPOLL … Newspoll is an Australian opinion polling brand, published by The Australian (owned by Newscorp; Chairman and Founder Rupert Murdoch )

\\

Bill Shorten is now serving on Mr Albanese’s front bench. Picture: David Geraghty, The Australian.
Bill Shorten is now serving on Mr Albanese’s front bench. Picture: David Geraghty, The Australian.

A senior campaign source told The Weekend Australian that Mr Shorten’s popularity was not the main reason the party lost; it was because it had too many polic­ies and failed to defend them against a scare campaign.

CAAN: Yet again a report in The Advertiser by Staff writers, of News Corp Australia Network

Is it NEWS CORP that is alleging Labor had too many policies? Is that because the Coalition had too few?

UNFORTUNATELY for the Constituency, and democracy with so much high wealth behind the Coalition, and its larger share of political donations, how will we in Australia achieve a fair and honest election result?

This article is based on a report published in The Weekend Australian.

SOURCE: https://www.dailytelegraph.com.au/alp-denied-bill-shortens-election-campaign-cry-for-help-report/news-story/69d61fb5af9b3eee85ebb9dc9ed2d970

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Backlash swells over Morrison Government’s visa privatisation

The following related articles and a number of others point to why Visa Privatisation should be canned!

Search ‘Visa Privatisation’ to find more!

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Trashed Visa System Fuels Human Trafficking, Exploitation and Slavery

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PM’s mate’s mate and the $Billion PRIVATISATION of Oz’s backdoor passport system

https://caanhousinginequalitywithaussieslockedout.com/2019/09/04/pms-mates-mate-and-the-billion-privatisation-of-ozs-backdoor-passport-system/

Backlash swells over Morrison Government’s visa privatisation

By Unconventional Economist in Australian Economy

October 12, 2019 | 11 comments

Labor has stepped up its attack against the Morrison Government’s plan to privatise Australia’s visa system, with Labor senator Helen Polley claiming it would raise costs, make border enforcement more difficult, and lead to greater exploitation:

Helen Polley.

Privatising our visa system will lead to increased costs of visas, greater risks of worker exploitation, data security breaches and will make protecting national security more difficult,” she said.

“Do we really want our visa system being outsourced? Do we really want our migration policy being determined by private companies

Separately, Labor has demanded the Australian Competition and Consumer Commission (ACCC) intervene to stop visa processing being handed to a single monopoly provider:

The Home Affairs Department plans to award a 10-year contract as soon as this month…

Opposition Assistant Treasurer Stephen Jones and opposition Minister for Immigration Andrew Giles have asked the Australian Competition and Consumer Commission (ACCC) to use its powers to conduct research on matters affecting consumer interests.

ACCC boss Rod Sims has made misuse of market power and concerted practices violations a priority for the watchdog in 2019.

Among Labor’s concerns are that visa application charges will become a for-profit exercise, and the successful bidder access to businesses and premium products.

Labor’s concerns about monopoly power are justified.

After the United Kingdom privatised its visa system in 2014, the new private monopoly provider significantly raised visa applications costs. There have also been accusations of exploitation and turning the United Kingdom visa system into ‘pay to win’ (see here).

Indeed, the first assistant secretary of the Department of Home Affairs, Andrew Kefford, recently boasted that visa privatisation is the “most significant reform to the Australian immigration system in more than 30 years”, and claimed it would make the “visa business” profitable by including “premium services for high-value applicants”, while providing “commercial value-added services”.

Peter Dutton

In other words, the Morrison Government would effectively make Australia’s visa system ‘pay to win’ and a profit-based, as has occurred in the United Kingdom.

We have already seen this disaster play out in higher education, which has undergone a “defacto privatisation” of its own.

Higher education has effectively been turned into a quantity-based profit-making business, whereby entry and teaching standards have been crushed in order to push through as many full-fee paying international students as possible.

University degrees have been dumbed-down so much that a student has to be really stupid not to pass, in the process eroding their value. Moreover, university vice chancellors now behave more like profit-maximising CEOs than guardians of teaching excellence.

In short, privatising Australia’s visa system carries huge risks.

The private monopoly provider will raise visa costs to inflate their revenues, the system will be turned into ‘pay-to-win’, and the integrity of Australia’s borders will become even more brittle.

Adding a profit motive and turning the visa system into a quantity-based business will eliminate what little integrity there is left and will result in Australia losing complete control of migration numbers.

At a minimum, visa privatisation must first be submitted for independent review by the ACCC, the Australian National Audit Office, and/or the Productivity Commission before coming into force. To do otherwise would fail the fundamental principle of parliamentary due process.

SOURCE: https://www.macrobusiness.com.au/2019/10/backlash-swells-over-morrison-governments-visa-privatisation/

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AUSTRALIAN HOUSING’s SUPPLY-SIDE SQUEEZE

Australian housing’s supply-side squeeze

LVO examines how Australia’s dwelling supply is tracking against population growth

READ in conjunction with this article!

‘Housing Crisis confirms Australia’s Economy Tanking alone in the Developed World’

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Australian housing’s supply-side squeeze

By Unconventional Economist in Australian Property

October 11, 2019 | 5 comments

*With this week’s release of dwelling commencements and completions data for the June quarter, it’s once again time to examine how Australia’s dwelling supply is tracking against population growth.*

The below charts track the following, which are based on the latest available quarterly data:

  • Dwelling approvals to June 2019;
  • Dwelling commencements to June 2019;
  • Dwelling completions to June 2019; and
  • Population change to March 2019.

*First, the national picture shows that both dwelling approvals and commencements have completions have collapsed.

*Completions have also just peaked, whereas population growth was strong at 388,800 in the year to March 2019:

*Overall, dwelling construction is facing an epic bust at the same time as population growth continues to run rampant.

*Next is NSW, where after lifting to unprecedented levels, both approvals and commencements have collapsed. However, completions have just peaked, whereas population growth remains strong:

In VIC, both dwelling approvals and commencements are crashing, whereas completions look to have peaked in the June quarter. Population growth is still turbo-charged, albeit has moderated slightly:

In QLD, dwelling approvals and commencements are also crashing, with completions following closely behind. By contrast, population growth into QLD has risen strongly over recent quarters:

The construction cycle in WA continues to unwind abruptly with approvals, commencements and completions all plummeting. Meanwhile, population growth has rebounded after crashing recently; albeit remains at very low levels:

SA’s housing market was headed into oversupply. However, the situation is changing with population growth accelerating just as dwelling approvals and commencements are falling:

To summarise, while the housing market hit oversupply recently as the plethora of homes were completed, the collapse in dwelling approvals and commencements suggests that construction will bust from now into 2021.

Other things equal, this points to higher rents in the future; although this will also depend on what happens to wage growth and unemployment, which will be hit hard as construction jobs retrench:

SOURCE: https://www.macrobusiness.com.au/2019/10/australian-housings-supply-side-squeeze/

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HOUSING CRISIS Confirms Australia’s Economy Tanking … Alone in the Developed World …

KEY POINTS … despite global conditions for new home construction in 2019 are the best in seventy years

private sector houses declined 9.7% in the year ended in June from the previous year; just 110,015; the lowest since 2012-13

private sector dwellings other than houses dropped a staggering 29.9% last year from the year before; the worst decline in 23 years

public sector dwellings, including both types, declined 17.9% year on year

a puny 2,416; the lowest on record by far; the second lowest was 2,722 in 2011-13; the third lowest 2,779 in 2016-17, when Scott Morrison was Treasurer

the Coalition has virtually abandoned public housing; a high priority – and a strategic economic stimulus measure – of most previous governments

Related article … as the housing supply drops … the population continues to grow!

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Homes Alone: despite record rates, Australia lags world as housing crisis grips

by Alan Austin — 11 October 2019 — FeaturedGovernmentThe Economy

Alan Austin

Homes Alone: despite record rates, Australia lags world as housing crisis grips

Illustration courtesy of http://www.moir.com.au

The latest figures on new homes reinforce other data showing Australia currently making close to the worst economic progress in the Western world.

It doesn’t help that the Coalition has virtually abandoned public housing, reports Alan Austin.

Permits for new dwellings in the financial year ended in June came to a total of 188,250. That sounds quite a lot. But it was 44,726 fewer than the year before, and a thumping 50,406 fewer than three years ago. It was also fewer than in 1988-89 during Paul Keating’s reconstruction of Australia’s economy.

The percentage decline in the last year over the year before was 19.2%, the worst annual decline since 2000-01 at the depths of the early 2000s global recession.

Construction data deconstructed

New housing data has been released monthly since 1983 by the Australian Bureau of Statistics (ABS) in file 8731.0, Building Approvals, Australia. The ABS separates private sector construction from government, and houses from other dwellings such as blocks of flats and high rise apartments.

*Private sector houses declined 9.7% in the year ended in June from the previous year. The number – just 110,015 – was the lowest since 2012-13, towards the end of the global financial crisis (GFC).

*Private sector dwellings other than houses dropped a staggering 29.9% last year from the year before. That is the worst decline in 23 years.

*Public sector dwellings, including both types, declined 17.9% year on year.

*The number – a puny 2,416 – was the lowest on record by far. The second lowest was 2,722 in 2011-13, and the third lowest 2,779 in 2016-17, when Scott Morrison was Treasurer.

*This confirms the Coalition has virtually abandoned public housing, a high priority – and a strategic economic stimulus measure – of most previous governments.

*The average number of public housing dwellings built annually by the Keating Government was 8,514. Through the Howard years, this dropped to 4,346.

*The Rudd and Gillard period, most of which was impacted by the GFC, averaged 6,402.

*In stark contrast to these, the average under the Coalition – during an unprecedented global building boom – is just 3,060.

Global comparisons

*There is a credible case that global conditions for new home construction in 2019 are the best in seventy years.

Interest rates are extremely low, loan capital is available, building technology is advancing, unions are weaker than they used to be and international trade is freer than ever – Donald Trump notwithstanding – which moderates costs.

Most well-managed economies are taking full advantage of these strong global tailwinds and enjoying a new housing boom. Poland has seen building approvals increase for seven consecutive months, Greece for the last five months, and the Bahamas for the last four.

Current data on new housing approvals is available at tradingeconomics.com for 41 free enterprise economies.

The USA, Chile, the Czech Republic and Taiwan enjoyed increased new home approvals in July over June, and increases in four or five of the last six months.

The Netherlands, Germany, New Zealand, Belgium, Luxembourg, Croatia, Latvia, Estonia, Jordan, Macedonia, Kenya, Qatar and South Africa have all had rises in the latest month over the month before.

Canada, Honduras and Slovenia have seen strong rises for the last two months straight.

Sweden, Lithuania, Montenegro, Austria and Bulgaria, which report quarterly, have all reported higher building permits in the second quarter of this year over the first.

Albania has seen strong quarterly rises in five out of the last six quarters.

So these are global boom times for house construction. Except for three dismal laggards.

*Australia is the only country among these 41 in which housing starts have declined in five out of the last six months.

Also lagging are Portugal and Israel, with four of the last six months in reverse. But neither has housing outcomes as poor as Australia’s.

Forward to 2019-20

Here comes the scary part. We now have ABS housing permit numbers for July and August, which indicate how things are travelling in the new financial year.

*Total dwellings approved in those two months are just 25,782, a dramatic drop of 25.1% on the number for the same two months last year. That’s the lowest for July and August in seven years. It is the lowest relative to population on record. So there is no sign of any turnaround, despite the benign conditions.

Whole economy in decline

*The last financial year was one of the worst for Australia’s economy, with deteriorating outcomes on jobs overall, youth unemployment, productivitywages, interest rates, retail sales, GDP growthfederal debt, interest paid on the debt, net worth, the value of the Aussie dollar and the welfare safety net.

*The loss of wealth due to record exports being shunted out of the country with little or no return to the budget or the people of Australia – is now at an all-time high.

These outcomes are particularly shameful given the global conditions still prevailing with continuing growth in investment, trade, jobs, corporate profits and government revenue.

*In fact, it is these powerful global tailwinds which have masked the disastrous mismanagement of Australia’s economy.

*As an example, Australia’s ranking on jobs has slipped from 16th in the OECD two years ago down to 20th today. Appalling! But the jobless rate has actually improved from 5.5% to 5.3%. Thanks to the global boom.

Role of the media

Again, these dreadful outcomes will seldom, if ever, be mentioned by the mainstream media.

The compact – or is the quid pro quo? is secure.

The big media corporations will not disturb the management of the economy and the Government will not disturb their freedom from the obligation to declare profits fully and pay the required taxes.

Of course, if the corporations did pay appropriate tax on actual profits, along with fair wages, there would be plenty of revenue for new housing.

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ABOUT THE AUTHOR

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Alan Austin is a freelance journalist with interests in news media, religious affairs and economic and social issues.

Homes Alone: despite record rates, Australia lags world as housing crisis grips

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HOSPITAL PASS: JOSH FRYDENBERG AND THE COALITION AS, Ahem, Superior Economic Managers

MICHAEL WEST: Did you know, according to the ABS, that the number of unemployed Australians has gone up from 670k to 715k (Dec 18 to Aug 19 under Treasurer Frydenberg)? Hospital pass from Scott?

*Throughout the election campaign, Mr Morrison and Mr Frydenberg made much of the Coalition’s mantra “superior economic managers”.

KEY POINTS … How does this claim stack up?

-the only treasurer to start and also finish his time as treasurer with lower quarterly growth than Mr Frydenberg was John Howard

the treasurer presiding over the worst quarterly growth since ABS records began in 1959 is likewise Mr Howard

-the most recent treasurer with worse quarterly growth than Mr Frydenberg is Peter Costello

-Mr Frydenberg’s 0.259 per cent is even less than the lowest result during the GFC

Hospital Pass: Josh Frydenberg and the Coalition as, ahem, superior economic managers

by Michael West — 29 June 2019 — FeaturedFinanceThe Economy

Hospital Pass: Josh Frydenberg and the Coalition as, ahem, superior economic managers

Little did he know? Scott Morrison with Josh Frydenberg on Budget night. Source: ABC

Measuring the track record of Australia’s treasurers by worst growth figures detonates the Coalition myth of superior economic management. 

Michael West reports on 50 years of treasurers and Scott Morrison’s hospital pass to Josh Frydenberg.

When Joshua Anthony Frydenberg was elected deputy leader of the Liberal Party last year he got his choice of portfolio. Julie Bishop had selected Foreign Affairs. Mr Frydenberg was in Environment and Energy. Treasury offered an extra $32,101 in ministerial salary.

Prime Minister Scott Morrison could show him a nice set of quarterly GDP growth numbers: 0.675 per cent, 0.650 per cent, 0.782 per cent, 0.827 per cent; all up for the year, 2.935 per cent.

Mr Frydenberg chose Treasury and walked into his new office on August 8, 2018. Four weeks later he got the June quarter number. It was 0.716 per cent. It was good too. It lifted growth for the Australian economy to 3.009 per cent for the year.

This was the highest growth under this government and higher than anything Tony Abbott and Joe Hockey had seen. Mr Morrison was truly delivering, or so Mr Frydenberg thought.

Appearances can be deceptive

Did Mr Morrison know that things were already going pear-shaped? What were his Treasury officials saying behind closed doors? Mr Frydenberg certainly found out.

Three months later, in early December last year, Mr Morrison’s last report card was released: 0.447 per cent for the September quarter, almost half Mr Morrison’s 0.827 per cent of just three months ago.

Mr Frydenberg must have turned white and felt the chill of impending failure.

It would only get worse. In March, with an election having to be called, he was told the number was down again; to 0.307 per cent for the December quarter. What had happened? Perhaps he could blame this one on Mr Morrison too. After all, Mr Morrison was the previous Treasurer.

Or perhaps the polls were right, Labor would inherit the mess, it would be theirs to sort out. Like the Global Financial Crisis.

On April 2, Mr Frydenberg gave his first budget speech, probably assuming it would be his first and last. All he had to offer was the prospect of a budget surplus. Better to bury the downward trend in the growth numbers and simply say, “Australia is stronger than it was when we came to government six years ago. Growth is higher …. It is a testament to the strength of the Australian economy that it is its 28th year of consecutive economic growth”.

Bonds, lame bonds

It was true that growth was higher. But it had been a lot higher under Treasurer Morrison than it was now. And it was not true to say the country was stronger, at least if the trend in bond yields and GDP were any guide.

Notwithstanding the narrative “Back in the black and back on track”, the numbers were all heading the wrong way, and it was Budget day.

Quarterly growth had slumped from 0.827 per cent to 0.307 per cent in nine months. It had more than halved.

And, as he stood at the rosewood Despatch Box, the eyes of a nation upon him, he knew that two year government bonds had dived from 1.842 per cent to 1.444 per cent in less than three months. Five year bonds were even worse, down from 1.967 per cent to 1.434 per cent — a shocker, an interest rate nose-dive which augured ominously for the economy.

Worse again; the yield on the five year bonds had been less than the two years bonds, and this had been going on for ten days. A dreaded short-term “inverse yield curve” had arrived and it had been sitting there for nearly two weeks, conventionally a bad omen. Indeed, something not to be uttered in any Budget speech.

Promises, promises

The Prime Minister then needed to move fast if he wanted to spin this growth number into the never-never.

On April 10, he called the election and told his party, by his actions, if not his words, that he would run the campaign and everybody else should keep out of the news.

Mr Frydenberg had promised 1.25 million new jobs over five years: “under a coalition there will always be more jobs”. Mr Morrison repeated the jobs number in his campaign launch speech, saying that growth was higher, but not saying what it was higher than.

Obsessed with the excitement and theatrics of the big campaign, it was glossed over by the media.

Now safely and surprisingly back in office: three weeks ago, on June 5, things took another turn for the worse. March quarter growth was now at 0.259 per cent, under one third of what it had been when Mr Frydenberg ascended to the cherished role of Treasurer last year.

You would have to go back to Peter Costello to find any quarterly number that bad, even during the GFC.

It was underplayed however, due to “round-ups”. What the public saw in the last one was the number rounded up to 0.3 per cent but if you looked into the actual data which Mr Frydenberg must receive, it is far more frightening at 0.259. Moreover, the rounded 0.7 per cent from June last year is still sitting in the annual data so it’s propping the headline numbers up.

Treasurer measurer

*Throughout the election campaign, Mr Morrison and Mr Frydenberg made much of the Coalition’s mantra “superior economic managers”. How does this claim stack up?

*Did you know that the only treasurer to start and also finish his time as treasurer with lower quarterly growth than Mr Frydenberg was none other than John Howard (1977-82)? And he inherited his bad start from fellow Liberal Phillip Lynch.

*Did you know that the treasurer presiding over the worst quarterly growth since Australian Bureau of Statistics records began in 1959 is likewise Mr Howard at negative 1.214 per cent in December 1982 (the biggest quarterly negative so far)?

*Did you know that the most recent treasurer with worse quarterly growth than Mr Frydenberg is Peter Costello who conceded growth of 0.167 per cent for September quarter 2000, 0.202 per cent for December 2000 (the 2000 figures were affected by the introduction of the GST) and 0.212 per cent for March 2003?

*Mr Frydenberg’s 0.259 per cent is even less than the lowest result during the GFC when Wayne Swan was treasurer and notched up his worst at 0.286 per cent.

And back in 1961, future Liberal prime minister Harold Holt notched up a string of quarterly negatives during his time as treasurer.

Ranking the worst quarterly growth achievers:

*John Howard romps in in 1st, 2nd and 4th positions with the worst quarterlies
Harold Holt comes 3rd and 5th
Labor’s Paul Keating is 6th.

Consecutive negative quarters – and bearing in mind the definition of recession is two negative quarters in a row – this time ranked by annual negatives:

*Mr Howard is the winner with four quarterly negatives in a row (and the worst annual result at negative 2.943 per cent)
Mr Holt had three in a row (and an annual negative 1.237 per cent).
Mr Keating had four in a row (and an annual negative 1.147 per cent)

Sources:

The Australian Bureau of Statistics: 5206.0 Australian National Accounts: National Income, Expenditure and Product Table 2 (1959 to 2019).

So what do Josh Frydenberg’s numbers look like to June?

We’ve let Josh Frydenberg and Reserve Bank chairman Phillip Lowe devise an index.

We call it the MWI – the Michael West Index. It shows that the economy has decelerated since December. It has lost momentum. It’s a bit like what happens when you drive a car uphill and take your foot off the accelerator.

How does the index work? We took the Government’s election pitch on Growth (in GDP) and gave it the greatest weight. We blended in the RBA’s concerns with the CPI and interest rates (bond yields) and gave them less weight. We smoothed the numbers because they only come out quarterly. And added in the currency. All these numbers are down since December. This gave us 75% of the MWI. The rest reflects market sentiment and some data derived daily. It could pick up.

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Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences.

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MACRO BUSINESS REPORT: IS AUSTRALIA’s HOUSING RECOVERY A BULL TRAP?

MB Q3 Subscribers’ Report: Is Australia’s housing recovery a bull trap?

By MacroBusiness in Special Reports

October 3, 2019 | 58 comments

In MB’s Half-Year special report, entitled “Can ScoMo’s miracle save housing and the economy?”, we forecast a modest house price recovery for Australia into 2020.

Over the past quarter, however, the housing market has strengthened more quickly than we anticipated, with some commentators even declaring “the great Aussie housing boom is back”.

This report reassesses Australia’s housing market and finds that while the growth outlook has unambiguously improved over the next 12 months, downside risks have also risen further down the road. This raises the question of whether Australia’s recovery represents a classic “bull trap”?

The housing rebound has begun:

Photo: AFR

The recent Australian housing correction was driven by Sydney and Melbourne, where prices fell sharply, as well as Perth, whose correction continues in earnest and has run for more than five years:

However, dwelling values across the combined capitals rebounded strongly over the past quarter, driven by Sydney and Melbourne.

At the 5-City level, dwelling values bottomed in June 2019 after suffering a peak-to-trough decline of 10.7%. In the three months since, dwelling values have rebounded by 2.3%.

Sydney’s dwelling values bottomed in May 2019 after suffering a 14.9% peak-to-trough decline. However, in the three months since, Sydney dwelling values have rebounded by 3.5%.

Melbourne’s dwelling values also bottomed in May 2019 after suffering a 11.1% peak-to-trough decline. But in the three months since, Melbourne dwelling values have rebounded by 3.3%.

By contrast, Perth dwelling values continue to decline, down 21.3% over 63 months.

The rebounds across Sydney and Melbourne are reflected in auction clearance rates, which are the best short-term leading indicator of house price growth.

As shown in the below charts, Sydney’s and Melbourne’s auction clearance rates have rebounded strongly and are now both tracking near ‘boom time’ levels in the mid-70% range:

As you can see above, auction clearances typically lead house price growth. Therefore, the strong rebound in clearance rates is pointing to sharp house price appreciation over coming months.

However, the strength of the auction market, as measured by the clearance rate, is overstated. As shown in the next chart, overall auction volumes have fallen sharply and are tracking well below the ‘boom’ levels experienced between 2013 and 2017:

Overall sales volumes are also running well below the decade average, according to CoreLogic; although they have improved marginally over recent months:

Therefore, the improvement in auction clearances and prices has occurred off a ‘thin’ market, reflecting a lack of homes available for sale:

This suggests the price rebound is not as strong as it appears on the surface.

Housing finance commitments have also historically been a leading indicator for dwelling value growth; albeit not as timely as auction clearance rates.

As shown below, growth in the value of housing finance commitments (excluding refinancings) bottomed in March 2019 and has since rebounded:

Therefore, like auction clearance rates, housing finance is also pointing to a rebound in dwelling values though not yet so strong.

Policy makers have engineered the rebound:

The turnaround in Australia’s housing market was sown on 18 May 2019 when the Coalition unexpectedly won the Federal Election. Immediately, Labor’s negative gearing and capital gains tax reforms were jettisoned and a ‘property-friendly’ regime was put in place.

*Prime Minister Scott Morrison’s intention to support the housing market was signaled loud and clear a week prior to the election when he announced a surprise First Home Buyer (FHB) deposit subsidy scheme. Morrison admitted that this FHB scheme, which is due to come into effect on 1 January, had been devised by Australia’s property lobby for the express purpose of lifting house prices: *

“We want to see more first-home buyers in the market, absolutely, and we don’t want to see people’s house prices go down” – Prime Minister Scott Morrison, 13 May 2019.

Since the election, we have witnessed Australia’s financial regulators fall into line and launch a coordinated effort to support Australian housing values.

Just two days after the Federal Election, APRA announced that it would abolish its 7.25% minimum interest rate floor used in borrower loan serviceability assessments and replace it with a minimum interest rate buffer of 2.5% above the lender’s mortgage rate.

These changes, which werfinalised in July, are stimulatory for the housing market as they allow lenders to progressively lower their serviceability floor as the RBA cuts the cash rate, thereby enabling banks to extend bigger mortgages to more customers.

According to Fidelity International investment specialist, Anthony Doyle, “the APRA changes will improve the borrowing capacity of the average mortgagee by 8%. If you see two rate cuts by the Reserve Bank this year, the capacity of the mortgagee will increase by 15%”. UBS similarly estimated that “APRA’s removal of its interest rate serviceability floor may improve maximum borrowing capacity by around 14%”.

Later in May, APRA loosened further, announcing that it would lower the standard mortgage risk weight applied to smaller Australian deposit-taking institutions (ADIs) by 10 basis points to 0.25%. This change is also stimulatory for housing as it will allow these smaller ADIs to hold less capital against mortgage lending and expand the amount of funds that can be lent (other things equal).

For its part, the Reserve Bank of Australia (RBA) has cut the cash rate three times since the election – in June, July and October – with the market predicting at least another rate cut.

These rate cuts will obviously increase the potency of APRA’s relaxed interest-rate buffer, since loan serviceability requirements will now be eased proportionally as rates are cut.

As shown by the next chart from The AFR, mortgage serviceability floors have already been dramatically lowered across the Big Four banks, and this pre-dates the October rate cut:

Moreover, these floors will continue to lower as the RBA makes future interest rate cuts.

The major banks have also slashed interest rates on a range of owner-occupier and investor mortgages. For example, Westpac and its subsidiary banks cut interest rates by between 15 basis points (owner-occupiers) and 130 basis points (fixed rate investors) in September. The CBA also announced that it would lower interest rates on a range of mortgage loans for owner-occupiers and property investors, from 10 basis points to 90 basis points.

On 13 August, ASIC lost its legal action against Westpac for breaching responsible lending laws and being overly reliant on the Household Expenditure Measure (HEM) – a relative poverty estimate – as their default credit assessment tool.

The Hayne Royal Commission’s interim report found that “three out of every four home loans examined in the course of APRA’s 2016/2017 targeted review into home lending practices… assumed that the borrower’s household expenditures were equal to the relevant HEM”.

While the Hayne Royal Commission’s final report did not explicitly outlaw the use of the HEM in assessing a borrowers’ capacity, owing to the pending Westpac versus ASIC case, it did state that “both income and expenditure must be considered in first inquiring about, and then verifying, the customer’s financial situation”. The final report also implied that lenders must continue moving away from using the HEM in order to meet the responsible lending provisions of the NCCP Act.

According to Endeavour Equities, using the HEM to measure borrower expenses “upwardly biased Debt Service to Income ratios by 10-15%”, and “the size of the credit crunch is directly proportional to the unreasonableness of the HEM expenses benchmark”.

However, the judge’s ruling in the ASIC vs Westpac case undermined the Hayne Royal Commission’s findings. Specifically, Justice Perram declared that banks should assess borrowers’ ability to repay loans by looking primarily at their income, not their expenditure, and famously stated:

“I may eat wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare”.

That said, a newly updated HEM is reportedly in development that will more accurately match expenditure benchmarks with income.

This would constrain credit availability and prevent mortgage lending from returning to previous irresponsible ‘boom time’ levels.

According to UBS, this modified HEM should offset much of the monetary stimulus coming down the pipe:

ASIC has also appealed its case against Westpac to the Full Court of the Federal Court on the following grounds:

“ASIC consider that the Federal Court’s decision creates uncertainty as to what is required for a lender to comply with its assessment obligation, nor does ASIC regard the decision as consistent with the legislative intention of the responsible lending regime…

The Credit Act imposes a number of legal obligations on credit providers, including the need to make reasonable inquiries about a borrower’s financial circumstances, verifying information obtained from borrowers and making an assessment of whether a loan is unsuitable for the borrower”.

Against this, the Federal Government is doing its best to push back against regulators being too stringent in enforcing responsible lending rules. In late September, Prime Minister Scott Morrison ordered “banks to keep lending”, whereas Treasurer Josh Frydenberg warned that responsible lending rules could penalise “hard-working families” trying to get a mortgage and hurt the economy:

Image may contain: 1 person, eyeglasses and closeup

“It’s in everyone’s interest that the aspirations of hard-working families are not collateral damage in this regulatory process… Treasury estimates a 10 per cent increase in house prices could lift GDP by 1 per cent”…

“Given the key relationship between the health of the housing market and the wider economy, it is important that we continue to support the recovery that is underway” – Josh Frydenberg, 26 September 2019.

Photo: AFR

Essentially, the Morrison Government and its banker cronies have joined forces to neuter what is left of a well-meaning executive.

APRA has been show-trialed and corrupted.

The RBA has been summoned to the palace to explain why interest rates are not lower. And now the corporate regulator will be publicly shamed and legal process gutted to ensure that nothing prevents a return to mortgage fraud as quickly as possible.

While the situation is obviously fluid, we believe that Australia is likely facing significantly looser mortgage availability than existed pre-election, even if structurally tighter than the conditions that existed prior to the Hayne Royal Commission. This points to rising dwelling values, but not at the rampaging rates experienced during the 2013 to 2017 boom.

Domestic economic risks are rising:

While looser mortgage standards will provide strong tailwinds for Australia’s housing market in the near term, the domestic economy will likely soften further into 2020, presenting downside risks for the housing market heading into 2021.

The biggest near-term risk is the heavy downturn in construction activity, which could easily wipe-out 100,000 to 150,000 jobs over the next 18 months.

According to the ABS’ quarterly construction data, residential building activity fell by nearly 10% in the year to June 2018:

Dwelling approvals have also fallen off a cliff, down 30% from their peak, which points to a heavy construction downturn over the coming two years, given the long lead times between approvals and completions:

To date, the 10% decline in residential activity has yet to translate into construction job losses. In the year to August 2018, the number of Australians employed directly in construction increased to a near record high 1.2 million, accounting for 9.1% of total Australian jobs:

However, the heavy projected fall in dwelling construction, alongside falling infrastructure investment (see next chart), suggests construction jobs will retrench heavily over the period ahead.

Indeed, construction job ads are a good leading indicator of employment. As shown in the next chart from UBS, construction job ads have declined by around 30%commensurate with the decline in dwelling approvals – resulting in a “material drop in construction employment ahead”:

Moreover, overall job ads have fallen sharply, down 11% year-on-year in August, which points to wider job losses:

*Australia’s authorities are hoping that the bounce in dwelling values will lift dwelling construction in due course. However we are skeptical that it can do so quickly or with any great substance. The reason is the extraordinary “defect crisis” that has swept east coast apartment markets.

*The use of flammable cladding, the rise of dodgy Chinese builders and “phoenixing” construction firms, and the shear unbridled pace of the last boom, has left a legacy of cracked foundations, towering infernos and shoddy workmanship across the sector.

Estimates of the remediation bill for these defects has run to as high as $1 trillion.

*This will leave a legacy of stalled buying interest and suppressed lending into the apartment sector, and it was this segment that boomed so powerfully during the last cycle.

The irony is that this supply-side paralysis may, in fact, drive buyers even more into existing property, creating a bizarrely low economic calorific rise in house prices.

All hail the consumer:

The other hoped upside from the forced lift in house prices is via consumption spending through the ‘wealth effect’.

This is important because household consumption currently makes up around 55% of domestic demand:

And growth in household consumption has plummeted to levels way below the historical average:

However, there are good reasons to believe that the ‘wealth effect’ on household consumption will be far smaller than previous house price booms.

*First, the household savings rate has already fallen to just 2.3%, the lowest since 2007:

*Household debt is also the highest on record at 191% of disposable income as at June 2019:

*Meanwhile, Australian households are enduring a seven year economic winter, whereby real per capita household disposable income is 0.5% lower today than it was in June 2012:

The upshot is that without income growth, and with debt levels already sky high, there is not a lot of scope for Australian consumers to lift their spending, despite interest rate cuts and rising house prices – a point acknowledged last month by RBA governor, Phil Lowe:

Photo: AFR

“Monetary policy has become less effective at the margin. Once upon a time, when we lowered interest rates, people would run off to the bank to borrow to kind of go on a holiday or buy furniture or kind of do some spending, they don’t do that anymore” – Phil Lowe, 24 September 2019.

Indeed, the collapse in the stock of mortgage and personal loans, despite the cratering of interest rates, is proof that Australian households are dis-leveraging and paying-down debt:

A recent round of $7 billion in tax cuts is also supposed to aid a consumer rebound but, for the same reasons, we see most of that also being saved and used to pay down debt.

The tax cuts are miscued given the private sector is retrenching. The money would have been better spent on traditional Keynesian stimulus.

Business investment treading water:

The June quarter national accounts revealed that growth in business investment has turned down and is running slightly below the historical average:

Based on the latest ABS Capex Expectations and NAB Business Surveys, we expect business investment – which accounts for 12% of overall final demand – to grow by around 1% in 2019-20. Therefore, it should add only slightly to overall final demand growth.

Economy on public sector life support:

With household consumption weakening and unlikely to recover to any significant degree, dwelling construction crashing, and business investment treading water, the Australian economy has become overly reliant on public spending, which is running well above historical averages:

*In fact, public demand accounted for a whopping 62% of Australia’s final demand growth in the 2018-19 financial year, making government spending the primary driver of the Australian economy.

This spending growth has arisen through several channels, including the ramp-up of the $22 billion a year National Disability Insurance Scheme (NDIS), as well as the boom in infrastructure projects, including the National Broadband Network (NBN).

However, the NBN’s rollout is already past its peak, which is why the Major Public Projects Pipeline chart above falls all the way into 2020-21.

The story is similar for the NDIS, whose roll-out was expected to be competed by July 2019, with spending likely to peak this financial year.

Australia is running out of growth drivers:

The next chart tracking Australia’s final demand by component summarises the dilemma facing the Australian economy over coming years:

Australia’s real final demand is already slowing fast, growing by just 1.7% in the year to June in seasonally adjusted terms.

As noted above, dwelling investment will fall over the next two years, subtracting from overall growth, and this will likely be only partly offset by business investment.

Public demand – currently the major growth driver – is likely to slow sharply as the NDIS and NBN move past peak spending, and this is unlikely to be offset by stronger growth in household consumption spending.

*The upshot is that real final domestic demand is likely to keep falling towards 1% over the next year, levels consistent with 2014/15.

External risks rising:

*Such an economy can be considered to be operating near to “stall speed”. That in itself represents another headwind to house prices as unemployment also grinds higher.

*Secondly, such an economy is in no position to weather any other kind of shock. Yet that is precisely what we see transpiring in the global economy owing to a convergence of political risks that bear directly upon Australia:

  • the US/China trade war;
  • the Hong Kong insurrection, and
  • Brexit.

Of these, we are of the view that the trade war will not be resolved even if some kind of public relations deal is reached. The deterioration in US/China relations, and hardening of attitudes in the US political system, means more volatility ahead in the bilateral trade structure. Global supply chains will be henceforth be de-risked by shifting away from China regardless.*

*Hong Kong represents a standing risk that this process turns “nuclear”. If the Chinese Communist Party forcefully intervenes in Hong Kong then that will derail foreign investment into China for a generation.

Finally, a “hard Brexit” is still odds-on favourite some time in the next six months meaning a Eurozone already stumbling into recession as its China exports fall will be hit by a second shock from Brexit.

*Combined, trade frictions as they are and Brexit are enough to push the global economy into technical recession around 2% growth. That will be enough to trigger greater stock market volatility, though not so great as to deepen a global recession. A Hong Kong crack-down would be severe enough.

Thus, our base case is a negative circumstance for commodity prices. The two that matter most to Australia, iron ore and coal, have been very strong since 2016 on rebounding Chinese and global growth plus supply side shocks. 2020 sees both of these tail winds reverse and iron ore dropping another 30% as the base case. Coking coal has already crashed 40% from its peaks with more ahead. Thermal coal is similar.

A nasty income shock is therefore already underway for Australia and it is going intensify into 2020 as the terms of trade take a whooping back towards (but not as low as) the 2015 shakeout:

We know very well what this will do to the Australian economy:

  • national income and nominal growth will tumble;
  • the Budget surplus will evaporate and turn to deficit;
  • mining investment will fall;
  • wages growth will fall sharply.

While not specifically recessionary, these are very tough conditions for an economy already operating barely above stall speed. The income impacts in particular will make life very difficult for already strained households. At best, we can say that this will prevent any meaningful bounce in consumption and it may well intensify deleveraging. So it is likely to also lift unemployment.

At this point it is useful to recall what has happened to the Perth housing market in the past few years (see chart 1). The major difference between it and eastern cities was rising unemployment, along with lower but far from negative population growth. The result speaks for itself.

Is Australia’s housing recovery a bull trap?

There are bull traps and there are bull traps. This one has the full faith and credit of the Australian sovereign behind it so it is not to be stepped around lightly.

We view it in terms of scenario analysis:

  • The base case of a 50% probability is for the current pent-up demand price takeoff to slow through the second half of 2020 as the above headwinds grow. Sydney and Melbourne could appreciate 10% apiece over the next year before prices plateau as Australia’s structural growth and income problem worsens. Property prices then begin to lose value again in the medium term in real but not nominal terms as national income corrects lower around China’s structural slowdown.
  • There are two 25% probability risk cases. The bearish case is that Hong Kong ends badly (or the trade war explodes into a capital war) and Chinese growth shunts lower. In that event, property would enter a double dip correction of an historic nature. See Perth.
  • The bullish risk case is that the world stumbles through and its longest ever business cycle keeps on keeping on via some kind of ‘kick the can’ trade deal.
  • The supply squeeze and defect crisis in Aussie property meets ongoing out-of-control immigration and government-forced credit to push another round of mad bidding into existing housing. That could trigger an echo boom until Australia’s corrupt and broken regulators are forced to intervene somewhere around or above previous peaks owing to pulsating debt metrics.

The odds therefore suggest that this is a bull trap for Aussie property but how large, how painful and how fast is still up for grabs.

MB Q3 Subscribers’ Report: Is Australia’s housing recovery a bull trap?


SOURCE: https://www.macrobusiness.com.au/2019/10/mb-q3-subscribers-report-is-australias-housing-recovery-a-bull-trap/

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