Citizens Electoral Council of Australia

Media Release Thursday, 22 January 2015

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://cec.cecaust.com.au

Just as the oil market can crash, so can the property market

The plunging oil price that is down by more than half in six months is a reality check to Australian home buyers.

It is a reminder that markets can go down as fast, and often faster, than they go up.

The plunge also proves that the high price for the past decade was artificial—bearing no relation to cost of production or to supply and demand. (This means that every time Australians filled up since 2004 they were ripped off by the global oil cartel and commodity speculators.)

It is because the high oil price was artificial that nothing has been able to stop its recent plunge.

Another market looks remarkably similar—Australian property.

Beginning in 2000, Australian property prices suddenly shot up. Contrary to the self-serving analysis of banks and investment spruikers, it was not related in any way to supply and demand. In 2000, the Australian population was slightly less than 20 million; by 2013 it reached 23 million. Yet in that time property prices tripled, quadrupled and quintupled, depending upon the city. The ratio of household income to property exploded from 3.5 times in 2000—the long-term average—to 9 times in Sydney and Melbourne. Most of that increase was between 2000 and 2004, which underscores that this was disconnected from demand driven by population growth.

Instead, it was driven entirely by a massive flow of money into the property market—just like the oil market.

(The flow of money into the Australian property market was caused by a combination of government policy and bank speculation.)

Millions of Australians are trapped with mortgages on overpriced properties that they can just barely afford because interest rates are at record lows; in fact at “emergency levels”.

They could suddenly find themselves with properties worth less than half of what they owe on them.

This would be a catastrophe for mortgage-holders, but it would be a bigger catastrophe for the banks—which caused it—and the flow-on effect would be a catastrophe for the Australian financial system.

This looming danger is one of the major reasons why Australia needs a Glass-Steagall separation of Australia’s banking system, in which all retail banking is completely separated from investment banking.

This is the only way to ensure that, when the crash happens, the government will be able to step in and keep retail banking functioning, so that the daily economy can keep functioning, and keep homebuyers and tenants in their homes.

If enacted now, ahead of the crash, it will force speculators out of the housing market, which will bring down house prices, but that will make housing more affordable again—just like petrol.

For those so trapped in a high mortgage that this is scary, be assured that wishful thinking won’t keep prices up. The oil plunge shows that they can and will crash anyway. Your only hope is to fight for the Glass-Steagall policy so that the plunge in housing doesn’t wipe you and everyone else out.

The CEC is leading the fight in Australia for Glass-Steagall—join us.

The CEC is leading the campaign for the Australian parliament to adopt Glass-Steagall. Click here for a free copy of our Glass-Steagall Now! pamphlet, to join that campaign.

Click here to join the CEC as a member.

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