NEWS FROM THE FRONT DESK ISSUE No 410: The real estate agent down the road in inner city Sydney is not happy. He says the market is bad. Real bad. As bad as 1982. Worse than the GFC? We ask.
Yes, because in the GFC people weren’t buying, but this time, they’re also not renting, he says. Empty houses, empty shops. The Fifth Estate can vouch with direct evidence of agents recently chasing one of our staff to rent a place, and the price falling by $50 a week. Unheard of, we know.
Check out some of the data:
Real Estate Institute of Australia data confirms the trends but remember these numbers are averages. This means the joy for some tenants and the pain for some landlords will be far greater than the averages suggest. Also keep in mind that some agents don’t report numbers they don’t like, so the data can be far from accurate. The institute in Victoria says Melbourne rents are still rising but house values are down 3.9 per cent in the last quarter after rising 72.9 per cent in just over five years.
AMP guru Shane Oliver has lowered his housing values prediction from a now highly optimistic 5 per cent drop to 20 per cent; lurking in the background are estimates by The Economist that houses in Australia are 50 per cent overvalued.
Christopher Joye in the AFR says that in April 2017, only 11 per cent of settlement valuations in Sydney were below the original purchase price. By September 2018 that had jumped to 30 per cent, although this is still less than the previous cyclical peak of 43 per cent in 2012.
It feels like a roller coaster, huh? If the banks weren’t so liberal with their lending on interest only loans – a practice that always tends to expire at the same time as the market puff – it wouldn’t be so bad. Trouble is there’s real human suffering involved when ordinary folks – intelligent, educated and otherwise – who are not property experts, get sucked in by the hype.
You used to be able to trust the bank manager to paternalistically decide what you could afford. Not these days; it’s all about “empowering” us “consumers” (to jump over a cliff).
Our local Glebe agent blames China’s tightening of the financial screws for offshore investment flows to Australia, NSW’s 8 per cent foreign buyer stamp duty surcharge and now the Banking Royal Commission because the banks have been shamed into behaving a bit more conservatively; that is, they’ve turned the jet stream of credit into a trickle. “That’s why [former PM] Turnbull didn’t want it; he knew what it would do to the economy.”
At around the same time this week a builder we spoke to from Melbourne said his industry was in free fall. He got in touch about the same day that the mainstream news said property prices are falling by $1000 a week. If not more.
And to cap off the gloom the stock markets are plunging. Something they do periodically, but is this the big one?
Interesting how all these things seem to start with little canary tweets in the mine, easy to ignore at first, then growing stronger until there is a crescendo no one can ignore and it’s then it starts to penetrate the collective membrane of that delicate thing called sentiment.
Which accounts for the most extreme mistakes economists make because they kid themselves their work is in the sciences and not firmly co-rooted in social psychology and probably something they can’t possibly measure yet, in the ether.
So our human nature, and our socio-psychological selves.
But that’s not all. It’s to do with our environment as well. (Three legged stool, anyone?) Our place on the earth is precious (owned or rented) and will only become more precious as we densify our cities and as we feel the ping of insecurity as crazy people run our governments and as global warming digs its claws in.
So we’ll pay more for the best places and grab whatever opportunity we can to secure a place to call our own. Demographer Hugh Mackay used to refer to the sanctuary or nesting instinct we have.
It’s not too much of a bow to draw from there to see that as property grows in importance in our minds, we are happy to let our property markets become every bigger parts of our economic system. Banks know they can lend to us on houses because we’ll sell everything – and the wealthy will pull the kids our of private schools – before they’ll stop paying the mortgage.
Increasingly, as planning, transport and population pressures build, our connection to place/property feeds into our political system.
Yep, all things are interconnected and interdependent.
Ask anyone who is still close to the earth; any Indigenous person in any country, or as Luke Briscoe pointed out in Willow’s fabulous article last week, to our own ancestors from wherever they hail – the Celts for instance, the Etruscans, Han Chinese and so on. We bet all these ancestors knew more about how to live well in their “place” than we do.
The problem, more than likely, is “modern society”: rapid industrialisation, an economic system that widgetises our labour and turns us into consumers instead of citizens; a bad mimicking of mother where so many people act like amoebas in a pond and try to take over the joint and own it all. It’s never going to work, the pond will crash.
So we’ve over extended and there could be a bit of slow down.
As our Melbourne builder said, this is going to hurt.
The upside of a residential downturn
But there’s a silver lining, he says. First home owners might get a look into the market again. Renters might be better able to afford a decent home.
After the pain comes invention, driven by necessity.
We know how to adapt not just to our physical surrounds but sooner or later we work out how to adapt our mental attitude too.
In the UK the people preparing for Brexit, the “preppers” as we read on Thursday, are worried that Britain’s exit from the EU will suddenly cut off stocks of essential supplies and their food (we’ve heard medicines too could be in short supply).
A photo alongside an article on this in the SMH shows a woman gardening. She’s practising self sufficiency, getting in touch with the earth, learning, no doubt, the value and benefit of physical work and frugality. What’s wrong with frugality? It can yield another kind of wealth: less fuel consumption, cleaner air, lower greenhouse gas emissions, a calmer life.
If we can’t live the high life, eat out all the time, fly everywhere and consume like there’s no tomorrow, maybe the earth will be the big winner.
Frugality as a frame of mind?
There are times in history and places on the planet right now where people have very few goods and services but seem happy anyway. Bhutan’s happiness index is a case in point and there are many economists who say we need a better, more humane measure than the Gross Domestic Product.
Ask, who designs measures such as the GDP, then who benefits?
Is it possible we are influenced by advertising to love shopping and enjoy the thrill of the purchase? Maybe it latches onto primordial settings to enjoy the thrill of the chase. Maybe gambling triggers the same hormones.
But then so does that special bacteria in the soil when we garden. Handy thing too, when in ancient times we needed to grow our own food.
Walking and other exercise also release happy hormones, the scientists have discovered. Another happy confluence.
Are we starting to suspect that everything around us is genetically modified by the forces of nature and evolution to be a benefit? Complex isn’t it?
Complex and interrelated.
That’s us, that’s our earth.