Citizens Electoral Council of Australia

Media Release Tuesday, 25 July 2017

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

Empty houses destroy myth of supply and demand—prepare for a crash!

The 2016 census has destroyed the lie/delusion that “demand” has driven up house prices, revealing that a million—one in ten—Australian homes are empty. Buying houses to stand empty for the capital gain is not real demand, but speculation. It is also dangerous for the market: when property prices are rising empty houses push prices (and rents) even higher, but in a downturn the speculators are the first to stampede for the exits, unlike genuine homeowners who try to hang on for as long as possible—the rapid sell-off of this much housing will push prices down faster and further.

For years, vested interests have denied that the Australian housing market is a bubble, insisting that prices are driven by demand and a claimed housing shortage. The census has now obliterated that claim. It is a bubble, and all bubbles end the same way—they burst. As Deloitte Access Economics’ latest Australian business outlook report declares: “We’re sitting on a housing powder keg.” It is time to snap out of denial and prepare for a crash!

In London, investing in houses and apartments for the capital gain and leaving them empty is called “land banking”. The practice has grown in Australia alongside the bubble, the percentage of empty homes having almost doubled since the 2001 census, when property prices had just started rising. Since the 2011 census the number of empty houses in Melbourne increased by 19 per cent, and in Sydney 15 per cent. The 18 July Sydney Morning Herald reported figures from property market analysis firm CoreLogic showing Sydney’s dwelling prices skyrocketed 18.4 per cent, more than $120,000, over the past year, and Melbourne’s have risen 13.1 per cent, more than $70,000. Rental income could never match such capital gains. Until the house is sold, however, the gains are all on paper.

Since the property bubbles in the USA, UK, Ireland and Spain all crashed in 2008, only Canada has had a property bubble to rival Australia’s. According to Crescat Capital, the Australian and Canadian bubbles exceed 200 per cent of GDP, proportionally much larger than the US property bubble at 160 per cent, which blew up the global financial system when it crashed in 2008. Canada’s bubble is starting to shake: house sales since March have fallen 14 per cent, while the average house price has dropped by 10 per cent since April. Ominously, this drop is concentrated in the two cities, Toronto and Vancouver, which like Sydney and Melbourne are where the Canadian bubble is concentrated. Similar falls in Australia would be enough to send some speculators scrambling for the exits, which could soon turn into a stampede.

The looming crisis in Canada and Australia coincides with mounting losses in the USA’s corporate debt bubble, which is bigger than its 2008 housing bubble. On 17 July a US$2 billion Texas private equity fund called EnerVest, which started in 2013 to focus on energy investments when oil was US$90 per barrel, disclosed it is now almost worthless. Its collapse is an echo of the July 2007 collapses of hedge funds affected by the rising defaults on US mortgages, which were the harbinger of the crisis that snowballed into the 2008 meltdown. At stake is US$14 trillion in US corporate debt, US$5 trillion of which is from speculating in shale oil. The decade of high oil prices up until 2014, and the subsequent crash, is an example of what happens when prices are driven by speculation, not real demand—and a lesson for Australian housing investors.

A housing crash is a banking crash

As the Citizens Electoral Council (CEC) and others have long warned, the collapse of Australia’s property bubble will be just the beginning of the crisis. It will set off a much bigger crisis in the banks. Mortgages are 60 per cent of the Big Four’s businesses, making them the biggest speculators in the housing market. They will be wiped out when the property bubble bursts. This is not academic: the USA, UK, Ireland and Spain all suffered devastating banking collapses on the back of property crashes, leading to massive taxpayer bailouts, bank nationalisations, and brutal austerity.

Imagine it’s 2007 again, but this time the authorities in the USA, UK etc. know the 2008 crash is going to happen. Wouldn’t the public expect a massive pre-emptive government intervention into the banks, in order to avert hundreds of bank collapses, multi-trillion-dollar taxpayer bailouts that lead to massive budget deficits, and hundreds of thousands of people losing their homes and becoming impoverished? That is the situation Australia is in right now. The government has the benefit of being able to heed the lessons of the 2008 crash and act now, ahead of the crash, to reorganise the financial system to avert a similar, or likely worse, crisis hitting Australia.

The government’s first act must be a full separation of Australia’s banking system, modelled on the USA’s successful 1933 Glass-Steagall Act. Commercial banks that hold deposits must be divided from speculative investment banking and all other financial services, which would involve breaking up the Big Four banks into separate, smaller institutions. This, and only this, would protect depositors from a crash; it would also stop banks from using deposits for speculation, which would start to deflate the speculative bubble in the housing market.

Political leaders in the USA, UK and other European nations are fighting to restore the Glass-Steagall separation. The CEC has led the fight for Glass-Steagall in Australia, and has just prepared a formal Glass-Steagall proposal for Members of Parliament. The banking crisis in Australia has become so acute that Parliament is only one vote away from establishing an inquiry into the banks, in which breaking up the banks would be on the agenda. If you want the government to act before a housing collapse brings the banking system crashing down, join the CEC’s Glass-Steagall campaign today!

What you can do:

Sign and share the CEC’s petition: Break up the big banks now—pass Glass-Steagall! You can sign on change.org which automatically emails 20 leading MPs, and the version on the CEC’s website, which will be tabled in Parliament. Please sign both versions.
Click here to order a free copy of the CEC’s “Proposal for a Glass-Steagall separation of Australia’s banking system” to give to your Member of Parliament.
Click here to order multiple copies of the CEC’s four-page colour flyer, Australia sleepwalking to ‘economic Armageddon’, which clearly explains the crisis and the Glass-Steagall solution, to distribute to friends and family and your community.

Click here to join the CEC as a member.

Click here to refer others to receive regular email updates from the Citizens Electoral Council of Australia.