Abandoning Australia’s manufacturing base is having fallout in housing

Abandoning Australia’s manufacturing base is having fallout in housing, by Robert Gottliebsen.

As each day goes by the downward thrust in the housing market gathers momentum and the developer crisis worsens.

Most banks are frozen by the repercussions of the royal commission and the dwelling price fall is multiplying their nervousness and intensifying the credit squeeze. Bank dividend cuts are likely.

Throughout the developing crisis Australia’s largest residential property owner and developer, Harry Triguboff, has been warning of dangers ahead but has been basically optimistic.

“The situation is very dangerous. The market has deteriorated again,” he says

“If it continues like this, people will lose a lot of their wealth because their houses are losing value. Because the value of the properties is going down, the banks are becoming much harder on their clients. …

Triguboff believes that the Sydney part of the crisis will hit hard before mid-2019: when the election is due.

Triguboff is not as familiar with Melbourne. But I believe the Melbourne situation may take a little longer to develop into a crisis. The other state capitals are affected differently. Perth has already had its downturn and is recovering. Adelaide and Brisbane did not boom in the same way as Sydney and Melbourne so will not be hit as hard. Adelaide is building a massive defence complex. Hobart had had its own boom so may not escape. …

If there is a 20 to 25 per cent fall in dwelling prices (in many cases it will be much greater), migration is slashed and the home building industry is reduced to a much smaller role then there will be a big rise in unemployment. …

Meanwhile, first home buyers have had the amount of money they can borrow slashed, the Chinese have withdrawn from the market …

So we needed manufacturing after all:

We need to face the fact that, like the US, we decided to abandon our manufacturing base and overcame the standard of living implications of that decision by heavy bank borrowing to fund a housing boom.

But we did not bother to install the infrastructure required to service such a boom and the migration and population rises that went with it.

And then the regulators turned off the bank-lending tap and we appointed a banking royal commission, which has made bank executives scared to pick up the phone, let alone lend money. I clearly exaggerate, but the point is made.

Fancy that: making things is important. We cannot all get rich together by letting the banks manufacture more money to pay for ever higher house prices while we sit around and play on our smartphones. Say it isn’t so!

hat-tip Stephen Neil