The writing has been on the wall for a long time in Australia but vested interests and the status quo means no meaningful change is actually going to happen.
Take Australia National Broadband Network (NBN) strategy as an example. Connecting every house and business to a fibre optic line would have "future-proofed" the nation for generations. Instead it was destroyed by the conservative government, along with investments in renewable energy, a resources super tax and a range of other progressive ideas.
This country is run by dinosaurs. While there are intellectuals, theres also a proud culture of ignorance and weird working class arrogance. Instead of having pride in working class jobs and pride in working class people who put food on their families tables and support their community it seems theres been a concerted effort to warp it into and "us vs them" attitude of "true blue" working class Australians against white collar "know it alls". This is plain to see when the current Prime Minister and former investment banker goes into rural towns wearing his untarnished Akubra and adopts his fake working class accent to stoke tension between rural and city people.
Australia often has bushfires every 7 years or so that have historically cleared out a lot of dead wood and given the bushland an opportunity to breath and grow again. New policies to prevent bushfires meant woodlands accumulated fuel which led to cataclysmic-ally large bushfires like black saturday, ash wednesday etc.
Its hard not to think that Australias approach towards governance is similiar and that the only way for us to re-set the agenda is through a huge depression.
> In Australia, the average person in the street might think that the way that you get into the Prime Minister’s office is by being elected by the people. Since 1966, this has only been true about 40% of the time.
Well not only are they wrong. Matt Barrie (the author) is wrong too. No Prime Minister has ever been elected by the people. All of them have been elected by their party room. Australia elects Representatives and Parties. Mr. Barrie seems to be wading into topics that he doesn't have the chops for...
screwed my face up at this, I'm willing to give him the benefit of the doubt and and assume he chose his words poorly and meant that 6 were not the party leader at the time of the election.
It's a shame because there is some interesting opinions in this that wind off into almost stream of consciousness.
If he had stuck to making his point with data and scrapped the anecdotes it would have made it an easier read.
> Indeed Digital Finance Analytics estimated in a October 2017 report that 910,000 households are now estimated to be in mortgage stress where net income does not covering ongoing costs. This has skyrocketed up 50% in less than a year and now represents 29.2% of all households in Australia.
As of 2011 there were 7.7 million households in Australia (according to the ABS) so how does 910,000 (or 888,207 in the table) become "29.2% of all households in Australia"?
The more I read this article, the less I'm convinced... Another "odd" bit (imo).
> This brings me onto Australia’s third largest export which is $22 billion in “education-related travel services”. Ask the average person in the street, and they would have no idea what that is and, at least in some part, it is an $18.8 billion dollar immigration industry dressed up as “education”.
> While some of these students are studying technical degrees that are vitally needed to power the future of the economy, a cynic would say that the majority of this program is designed as a crutch to prop up housing prices and government revenue from taxation in a flagging economy. After all, it doesn’t look that hard to borrow 90% of a property’s value from Australian lenders on a 457 visa.
A 457 visa doesn't have anything to do with a student visa... This comment feels like intentional misdirection, because those two things are not at all related. (A 457 visa is a skilled worker visa - although as with all skilled work visas, it has got it's own controversy and, as the article points out (in an underhanded way I would say, again...), until recently had some very odd "skills" (and probably still does...))
> How much the banks will be left to carry when the market turns and these students flee the burden of negative equity is anyone’s guess.
AFAIK, if you're a temporary resident in Australia getting a 90% loan (and even if you're not a temporary resident in some (many?) cases) there's a requirement to get Lenders Mortgage Insurance. So... The insurer will be left to carry said burden, not the bank? Unless my understanding of LMIs is off. And again, they're not a student if they're on a 457 visa, so this is all a bit inaccurate anyway...
Back to the "education-related travel services" side of that quoting, friends of mine work in the Higher Education industry and it actually is huge business for them getting international students. And their respective organisations make a lot of money from it. (And it's not just higher education, even schools in Australia make a lot of money from international students.)
And, in my opinion more importantly, this is an export industry, so it doesn't matter that only "some of these students are studying technical degrees that are vitally needed to power the future of the economy". It's not about those degrees being vitally important to Australia's economy, because it's an export... (And the underhanded nature of that line is a bit much for me...)
> You now know what all these tinpot “english”, “IT” and “business colleges” that have popped up downtown are about. They’re not about providing quality education, they are about gaming the immigration system.
Sure, I mean, I don't know how technically accurate this statement is so taking it at face value, just because there are some dodgy education providers, the whole 18 billion dollar industry is now denigrated to an "immigration industry"? Apparently there are 6 Australian Universities in the top 100 worldwide [0], but no, the whole show is actually _mostly_ just an "immigration industry"?
("Ask the average person in the street, and they would have no idea what that is" - a huge number of my friends know that the Australian economy makes a heap of money from foreign students studying here, maybe they don't know it's the third biggest export, but still... Again with the underhanded language...)
You're right that there are a couple of odd, basic inaccuracies.
> As if the Australian economy needed further headwinds, the developer-enamoured evangelical right have crucified NSW’s night time economy. Reactionary puritans and opportunists alike seized on some unfortunate incidents involving violence to simply close the economy at night.
In the last couple of years, the only lockout laws I have heard about apply to the CBD of Sydney, and nowhere else. But here, the author conflates the Entertainment district of the CBD with the entire NSW night-time economy.
Perhaps, by the numbers, it's fair enough to conflate those things. But a strongly suspect he's just very wrong.
Another bubble is agricultural land prices in the United States. This was such a foreign thing to me when I first heard it, but it’s so overvalued. If you look at a 20 year graph you’ll see it barely even dipped during the 2008 recession.
That, combined with any downturn is going to see a bunch of Baby Boomers sell their houses to make up for their lost 401k money only to find that no millennials (and certainly no millennials without jobs) can or want to buy their houses.
Keep in mind, unlike the stock market which has dozens of safeguards and controls, the housing market has exactly zero safeguards. Think about that for a second. The housing market is operating off the same system Wall Street basically had in 1873.
Bubbles certainly do come and go, but the larger issue here, the one that will compound the bubble greatly, is the lack of political resolve to tackle it. A bailout is a political no-go. It looks like the full force of this bubble will have to be ridden out.
If anything 2008 was WWI, and the bubble coming up will be WWII.
tip: Start a local facebook group. The amount you can save in borrowing power tools is amazing...
Their real estate development boom is largely supported by Chinese investors. That is, buying into a Development Co. in AUS and having an Aussie run it.
In Sydney I counted 50+ cranes earlier this year. Will the demand for X amount of new towers continue? Will buyers support it or become Miami 2.0? How many empty condos are there in Miami right now?
They are also very prideful about the state of their economy.
Because Sydney barely had apartments until recently. Cross the bridge and it looks like a country village 3km from the city. Not many development sites and houses are very tightly held so it's tough to acquire houses for demolition and agglomeration into a development site. If Sydney is going to be a real city it needs the development that's happening now.
I've also noticed cranes here are used for midrise apartment block construction which I'd never see for comparable building in the US. There's a lot of safety rules and a strict building code so maybe that's why.
Do you have any data to support the claim that "Their real estate development boom is largely supported by Chinese investors"? My interpretation of that statement is that you are saying it is the most significant factor. I would certainly agree with you if you were to have said "...is supported by Chinese investors."
From the article regarding cranes: "According to the Rider Levett Bucknall Crane Index, in Q4 2017 between Sydney, Melbourne and Brisbane, there are now 586 cranes in operation, with a total of 685 across all capital cities, 80% of which are focused on building apartments. There are 350 cranes in Sydney alone."
From the article regarding Chinese investment:
"Foreign investment across all countries into real estate as a whole was the largest sector for foreign investment approval at $112 billion, accounting for around 50% of all FIRB approvals by value and 97% by count across all sectors - agriculture, forestry, manufacturing, tourism - you name it in 2015-16."
And:
"Around $32 billion invested in real estate was from Chinese investors in 2015-16, making it the largest investment in an industry sector by a country by far."
Yeah, I understand that Chinese investment in Australian real estate is significant - I'm questioning whether or not it is the most significant factor driving the real estate boom. I've always assumed cheap credit and tax incentives for locals were the most significant factors.
Ah, apologies, I misunderstood. I don't recall seeing anything usefully quantified in the article about the effects of tax incentives, though there was a comment somewhere there about negative gearing, quoting David Llewellyn-Smith:
"This tax policy allows more than one million Australians to engage in a negative carry into property in the hope of capital gains. In a nation of just 24 million, 1.3 million Australians lose an average of $9,000 per annum on this strategy thanks to the tax break".
As to determining which is the most significant factor, I will leave that to those with far greater understanding of the area than mine.
Not a hugely accurate measurement method but it's definitely clear that Chinese investment crossed a threshold sometime this year, because I'm starting to notice property developers advertising including Chinese (I'm pretty sure most of what I've seen has been in Mandarin but I could be mistaken.) along side the English. It's not the norm yet, but it's definitely a troubling sign of how significant the overseas investment has grown.
A much simpler way to look at the same argument is simply to describe Australia as a Chinese mining province. There's no shame in that -- my native Australia has only a bit more than half of the population of my current home, California.
The widely reported "104 quarters of growth" is indeed impressive but it's ironic that the achievement was breaking the record of the Netherlands -- who set their record through extractive industries (oil in their case). And in fact Australia suffers some of the "Dutch disease": a loss of other primary industries, like manufacturing, wage and property inflation, and a sectoral imbalance.
None of this means the sky is falling (or doesn't) -- the economy is flexible, and China's economy, being huge, has a lot of inertia. But people should be honest in how they characterize it.
A long and perhaps terrifying article. With all the statistics, a strong case is made that Australia is in deep, deep trouble. What I'm having trouble with is understanding why this is not talked about more in more main stream avenues?
Barrie's company Freelancer.com was just outed as a bunch of scam artists on HN front page yesterday, now he's an economic mastermind?
This whole article is basically "the entire world economy is a house of cards wtf!" Yeah, no shit. We've known that for a decade now. Australia rises and falls with the world economy and if/when China crashes things will be ugly everywhere.
I have searched for the article using 'Freelancer.com' and the earliest one is from 10 days ago titled 'Freelancer.com has ruined my life'. I also see similar articles to this from longer ago. Definitely seems like a site to avoid.
Searching for 'Matt Barrie' only gave this story.
I would love to see the article about them being scam artists.
This is a fine example of what I was saying, this is people cramming money into something with the hope of getting rich in a short period of time. People getting in knew it was a high risk gamble. Not to mention that the tech industry is now one of the biggest on the planet. Is it still a bubble?
Edit: attempt to add clarity.
The core of what I'm trying to say is almost any increasing asset is labelled as a bubble now days. I'm not denying that there aren't shady investments that appear and collapse all the time, some are enormous, like the tech bubble.
But it requires further classification. There are gambling bubbles built by thousands of agents where some have seen astronomical profit, but then there seems to be more stable "bubbles" like all of the bubbles mentioned in the article.
A bubble isn't a bubble, not without further clarification.
How was the property market crash in the US not a case of a bubble bursting? Some other obvious cases would be Ireland and Spain around the same time. How they were inflated and what triggered the collapses is irrelevant. The pattern is the same - speculation drives prices to unrealistic levels and eventually a major correction occurs.
OP was implying that because the US property boom and bust involved deception ("scam driven") that it wasn't a real bubble - only close to a bubble.
OP never mentioned Aus - only that they had heard a lot of talk of bubbles but hadn't identified any. I was just giving a few recent examples that I'm sure most would agree qualify as such.
Take Australia National Broadband Network (NBN) strategy as an example. Connecting every house and business to a fibre optic line would have "future-proofed" the nation for generations. Instead it was destroyed by the conservative government, along with investments in renewable energy, a resources super tax and a range of other progressive ideas.
This country is run by dinosaurs. While there are intellectuals, theres also a proud culture of ignorance and weird working class arrogance. Instead of having pride in working class jobs and pride in working class people who put food on their families tables and support their community it seems theres been a concerted effort to warp it into and "us vs them" attitude of "true blue" working class Australians against white collar "know it alls". This is plain to see when the current Prime Minister and former investment banker goes into rural towns wearing his untarnished Akubra and adopts his fake working class accent to stoke tension between rural and city people.
Australia often has bushfires every 7 years or so that have historically cleared out a lot of dead wood and given the bushland an opportunity to breath and grow again. New policies to prevent bushfires meant woodlands accumulated fuel which led to cataclysmic-ally large bushfires like black saturday, ash wednesday etc.
Its hard not to think that Australias approach towards governance is similiar and that the only way for us to re-set the agenda is through a huge depression.