The writing on the wall has turned into yelling ‘Fire!’ in the streets


The property market continues to exercise the minds of simple journalists caught between mixed messages. To promote the positive spin of the developers, the optimism of the part time politicians or listen to the boring economists fight over Keynesian theories about the ‘Free Market’.

Facts we know:

  • The Government needs ever increasing tax revenues
  • The Chinese economy is faltering and the rich are desperately seeking external investments
  • The average house price in the antipodes is 12+ times the average income
  • The population is ageing and wanting less work and maintenance in retirement
  • Pensions are going to be a struggle to fund
  • Healthcare needs that increase as we age, are underfunded
  • Tax revenues will never be this high again
  • Lack of education and trades funding have bred a generation of low income ‘Hospitality and service industry’ taxpayers
  • Large corporations are not contributing to local economies by spending locally (Remember the BS ‘Trickle down’ theory?)
  • Large corporations are paying as little as 1% tax and will ‘Run away’ if forced to pay more
  • The historical ‘Average house price to average earnings’ ratio is 3 – since records began

Conclusions:

House prices WILL drop – All that is buoying them is foreign investment, cheap credit (Banks are running out of borrowers fast – NINJA loan time again! – Happy days *insert sarcasm here* are here again)

People simply cannot (and the latest generations WILL not) spend at those levels on a dwelling. Not only is it unaffordable, it is financial suicide.

Given that generations swing in attitudes like a pendulum, the focus on property ownership will swing to a mobile generation with neither loyalty nor aspiration to either employer (income) nor geographic area (Expenditure). The following generation will be the ones who buy your fancy mansion if it is still standing and of desirable location or quality. The catch is – the price. Expect 20-40 cents in the dollar. Keynes called it ‘Supply and demand’.

The up and coming workers cannot afford the houses on their wages. When breeding time calls, they will head for the cheaper areas, leaving a dearth of workers in the city and a glut in the cheap areas, further reducing the tax take.

Similarly, the ‘Youth’ will not spend at the levels their parents did. They have lower wages thanks to Dad’s share price driven mentality, there are 50% less of them, they are more eco minded, they know how to buy on the Internet and get the lowest price, they are at the opposite end of the pendulum swing and no longer worship at the shopping mall.

Large corporations will continue to be loyal to the regime with the lowest tax rate.

The middle classes are already under pressure and cannot afford more taxes, the up and coming will never earn what these people do – Anything that can be outsourced has been – even low paid call centre work.

Hospitals and infrastructure will be pared back or become user pays.

Houses will be left to rot as the cost of tradesmen will skyrocket when the oldies retire and the average youth wants a ‘clean’ and easy job where they can update Facebook and Twitter every 30 mins.

You already see this in places like Queensland – Cars full of dents and houses not repaired for many, many years – The cost is beyond what people can afford. $100 an hour for a mechanic, $70+ for a builder.

The oldies want apartments they can feel secure in because the poor keep robbing their houses – So much harder when you are 20 floors up. Cafes and shopping are closer and a troublesome car is no longer required – No more hassles with parallel parking and your sore neck!

AH but, the houses are worth a fortune you say. Only if you can find a buyer. What buyer wants a rundown house? As the oldies retire, it will become ever harder to sell the $1m mansion unless it is in a great location and in great shape (Think stately mansions in the UK that have driven generations to financial ruin).

Housing will return to the historical average within a generation, there is nothing surer except death. I suggest you do your maths and choose an escape to suit. Most people will bury their heads in the sand and leave the problem in the corner of the room like the traditional elephant. To be fair, it cost them $30,000 when they married and it will be worth $30,000 when they die, and it gave you a roof over your head. It was a simple and useful store of value. Some will exit asap and use the money to downscale and bank the rest (NOT saying a bank is a safe place to store it though!)

Perhaps a desperate Government will introduce an ‘exit’ tax in a last ditch bid to keep their bloated salaries and perks. After all, nobody else left to tax and you can’t win by voting them out as both sides are one and the same.

The current media fad is to persuade us that ‘Tiny houses’ are the future – What a load of rot!. No person wants to live in a caravan for the rest of their days. A garden, room to sit and stand are basics of life, living in a cupboard is not.

If China’s push into replacing the Swift system takes hold, the current US dominated Swift transaction system will massively erode US bank income and a race will develop over which system is cheaper.

Given the Asian traditional reliance on a cash economy, they have a stupendous advantage over credit dominated economies. They already have trust and privacy advantages in their banking systems (that also have massively better debt to equity ratios – like eight times the equity of a US / UK bank). They are also the major force in World supplies of so much food and hard goods already, so it’s logical to demand payment in ‘local’ currency.

The mass exodus from the USD denominated medium of exchange in such a public and hurried manner tells you the writing on the wall has turned into yelling ‘Fire!’ in the streets.