More Fodder For Our Property Debate

With stock markets directionless and dependent on utterances from the US Federal Reserve for their next move, property has been the main topic of discussion in this week’s Markets and Money so far.

So we thank RBA Governor Glenn Stevens for providing more fodder for our property debate. In a speech yesterday, he made the shocking revelation that you shouldn’t expect property prices to resume their historical growth rates. We get to the meat of Steven’s speech here.

But first, you have to ask how effective interest rates are in the face of backwards government policy. Yesterday also saw the release of dwellings approvals data, and it came in way below expectations.

Admittedly it’s a volatile data release, and swings around quite a bit. But over the past 12 months, in seasonally adjusted terms, total dwelling approvals are down 13%. A sharp 37% fall in apartment approvals was behind the decline, while housing approvals were up 9.9% over the past 12 months.

But despite record low interest rates, even housing approvals fell by 1.2% over the past month. Could the sugar rush of lower rates be wearing off already?

While low interest rates have no doubt helped the housing sector out of its 2008 depths (when interest rates in Australia peaked) the sector needs more than just cheap credit to help on the demand side. It needs intelligent policy implementation to boost the supply side.

Recent changes to state-based first home owner incentives are a step in the right direction, but it’s only a start. Governments must aim to minimise, not maximise, the cost base of land. If they do, they’ll be surprised how much activity follows. But that’s a story for another decade…


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From the Archives…

Has the Chinese Economy Hit the Great Wall?
26-07-13 – Bill Bonner

Crisis, Capital Controls, and Accidents of Birth
25-07-13 – Doug Casey

Australia’s Mysterious Natural Gas Shortage
24-07-13 ­– Nick Hubble

Bernanke’s QE Train Wreck That’s Heading Our Way
23-07-13 – Vern Gowdie

The Misallocated Savings of the Chinese Banking System
22-07-13 – Dan Denning

Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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