Why Higher Australian House Prices, Lead to Higher Social Tensions

This morning QANTAS announced a $252 million loss for the six months to 31 December and said it would shed 5,000 jobs over the next few years as it tries to cut costs to regain profitability.

Alan Joyce has one of the toughest corporate gigs in Australia. Airlines, especially ones operating in Australia, are high cost…and capital intensive. You constantly need to invest in fleet capacity, and your competitors are often foreign owned entities with access to cheap fuel and a preference for gaining market share over profitability.

QANTAS hasn’t paid a dividend since 2009, yet it still struggles to generate positive cashflow after taking into account its investment needs. Its only option is to keep cutting costs. So another 5,000 jobs will soon evaporate from the Aussie economy. That should be good for Australian house prices

Meanwhile, residential construction is not responding to higher house prices, as we’re sure the RBA thought it would. Data released yesterday by the Australian Bureau of statistics showed that the total value of construction work performed over the December quarter fell by 1% on a seasonally adjusted basis.

The value of residential construction was down 1.7% over the quarter and 1% over the year, indicating that the RBA’s significant rate cuts have done bugger-all to boost housing construction. Not that the RBA will admit to such helplessness. They probably think they just need to cut rates further.

It just goes to show there are deep structural flaws in the Australian housing market, both on the supply and the demand side. Gross supply side constraints and constant stimulation on the demand side have led to a market that no longer responds to simple economic signals.

Higher prices should lead to more supply. But not in Australia. They just lead to higher prices…which eventually leads to rising social tensions as cashed-up baby boomers leverage past property gains to add to their investment portfolios, outbidding youngsters in the process.

Oh well, just another result of easy money taken to extremes.


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Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

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