Housing policies as a drain on wealth creation

Housing policies as a drain on wealth creation, by Alan Moran.

Nowadays there is not much dispute that regulatory constraints on supply is the main reason why Australian house prices are up in the stratosphere.

Governments are incapable of unwinding decades of cumulative regulatory controls on housing which have created Hong Kong land prices in a nation with the world’s greatest supply of developable land.  Since the 1980s dwelling numbers have increased 40 per cent and people 60 per cent.

Prices that used to average three times household incomes are now six times that (9-12 times in Melbourne and Sydney respectively).

Seems like a good reason to cutback on immigration.

As well as an under-supply of houses, there is an oversupply of money, the other side of any house purchase. The banks are willing to manufacture money to lend against housing. Before fractional reserve banking three hundred years ago, there were no bubbles. After centuries of religious prohibition, soon after the introduction of fractional reserve banking to Europe (along with central banks, of which the Bank of England in 1694 was one of the first) the bubbles started — such as the Dutch Tulip bubble of 1720.

Currently there is a worldwide bubble and concomitant massive debt build up, which started in 1982. The GFC pricked the bubble, but did not burst it. Governments and central banks are preventing it from bursting, which would be nastier than the 1930s depression. Eventually a large inflation will be required to clear the bubble, and restore debt levels and interest rates to normal levels. Trump might accidentally kick that off.