Cranky Ramblings

Time to change the unfair rules for negative gearing

2011-05-18T07:34:00.000-07:00

Time to change the unfair rules for negative gearing

Saul Eslake

April 25, 2011

A Millionaire a Day

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Negative gearing has become much more widespread over the past decade, and much more costly in terms of lost revenue. Photo: Glenn Hunt

Under the present situation, people who do not speculate, or cannot afford to do so, are subsiding those who borrow and speculate.

FOR almost 25 years, successive Australian governments have, with varying degrees of enthusiasm, sought to promote higher levels of participation in employment, and higher levels of personal saving. These are both eminently worthy objectives, which public policy should seek to promote.

It's therefore somewhat surprising that successive Australian governments have not merely been content to maintain a tax system that taxes income from working and saving at higher rates than those at which it taxes income from borrowing and speculating (in assets whose values increase over time, often through no effort on the part of those who acquire them).

Instead, governments have either increased the extent to which income from borrowing and speculating is treated more favourably by the tax system than income from working and saving (as the Howard government did when it halved the rate of capital gains tax in 1999), or explicitly rejected sensible proposals that this more favourable treatment of income from working and saving than of income from borrowing and speculating should be lessened (as Wayne Swan did in May when ruling out recommendations by the Henry review).

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Most other advanced economies don’t have negative gearing.

Under the Australian taxation system, income from working - that is, wages and salaries - are taxed at higher marginal rates than any other kind of income derived by individuals: 31.5 per cent for most Australians with full-time jobs (earning between $37,000 and $80,000 a year), 38.5 per cent for those earning more than $80,000 a year and 46.5 per cent for those earning more than $180,000 a year. Income from deposits in banks, building societies and credit unions (the form in which one-quarter of household financial assets are held) is taxed at the same marginal rates. For those contemplating entering, or re-entering, paid employment (for example, after caring for children or aged parents), and depending on their family circumstances, the interaction between the gradual withdrawal of social security benefits and the impact of tax on income from work can result in effective marginal tax rates of close to, or even over, 60 per cent, on what are quite modest levels of income.

The Henry review concluded that ''some people [are] likely to reduce their level of work as a result'' of these very high effective marginal tax rates. This may be one reason why the workforce participation rates of women with children, and older people, are lower in Australia than in other OECD countries.

By contrast, income from most forms of investment, other than interest-bearing deposits, is typically taxed at lower rates than similar amounts of income derived from working. Income from saving through superannuation funds, and from ''geared'' investments (that is, the purchase of assets funded by borrowing) is especially lightly taxed. The Henry review calculated that, for a top-rate taxpayer, the real effective marginal tax rates (that is, after taking account of inflation assumed to average 2.5 per cent a year, and the time at which tax is payable) on income earned from superannuation savings or highly geared property investments are actually negative; while the real effective marginal tax rate on interest income from deposits can be as high as 80 per cent.

As the Henry review noted, ''retirement savings are generally lightly taxed around the world'', for the good reasons that these savings are usually not as readily accessible as other forms of saving before retirement age, and that encouraging self-provision for retirement reduces the cost to other taxpayers of providing age pensions.

Whether the taxation treatment of superannuation saving needs to be as generous as it now is in Australia to achieve those objectives is a moot point: in particular, it's hard to think of any compelling economic or social policy reason why income paid out of superannuation funds to people aged over 60 should be free of any income tax.

By contrast, very few other ''advanced'' economies are as generous in their tax treatment of geared investments as Australia is.

In the United States, for example, investors can only deduct interest incurred on borrowings undertaken to buy property or shares up to the amount of income (dividends or rent) earned in any given financial year; any excess of interest expense over income (as in a negatively geared investment) must be ''carried forward'' as a deduction against the capital gains tax payable when the asset is eventually sold.

In Australia, by contrast, where interest on borrowings undertaken to finance the purchase of a property or shares exceeds the rent or dividend income generated by those investments, that excess can be deducted against a taxpayer's other income (such as wages and salaries) thereby reducing the amount of tax otherwise payable on that other income.

The Howard government's 1999 decision to tax capital gains at half the rate applicable to wage and salary income, converted negative gearing from a vehicle allowing taxpayers to defer tax on their wage and salary income (until they sold the property or shares that they had purchased with borrowed money), into one allowing taxpayers to reduce their taxation obligations (by, in effect, converting wage and salary income into capital gains taxed at half the normal rate) as well as deferring them.

As a result, negative gearing has become much more widespread over the past decade, and much more costly in terms of forgone revenue.

In 1998-99, when capital gains were last taxed at the same rate as other types of income (less an allowance for inflation), Australia had 1.3 million taxpaying landlords who in total made a taxable profit of almost $700 million. By 2008-09, the latest year for which statistics are available, the number of taxpaying landlords had risen to just under 1.7 million: but they collectively lost $6.5 billion, largely because the amount they paid out in interest rose almost fourfold (from just over $5 billion to almost $20 billion over this period), while the amount they collected in rent ''only'' slightly more than doubled (from $11 billion to $26 billion), as did other (non-interest) expenses.

If all the 1.1 million landlords who in total reported net losses in 2008-09 were in the 38 per cent income tax bracket, their ability to offset those losses against their other taxable income would have cost more than $4.3 billion in revenue forgone. If, say, a fifth of them had been in the top tax bracket then the cost to revenue would have topped $4.6 billion.

(The revenue forgone through negative gearing was lower in 2008-09 than it was in 2007-08, because the number of taxpayers reporting rental income fell by about 51,000 (presumably as a result of the global financial crisis prompting some landlords to sell their properties), and because the substantial decline in interest rates after the onset of the financial crisis meant that fewer landlords paid more in interest than they received in net rent.

The figures in the previous paragraph also exclude revenue forgone through negatively gearing of share portfolios or other investments, on which no details are available.

This is a pretty large subsidy from people who are working and saving to people who are borrowing and speculating (since those landlords who are making ''running losses'' on their property investments expect to more than make up those losses through capital gains when they sell the properties.

And it's hard to think of any worthwhile public policy purpose that is served by it. It certainly does nothing to increase the supply of housing, since the vast majority of landlords buy established properties: 92 per cent of all borrowing by residential property investors over the past decade has been for the purchase of established dwellings, as against 82 per cent of all borrowing by owner-occupiers.

Precisely for that reason, the availability of negative gearing contributes to upward pressure on the prices of established dwellings, and thus diminishes housing affordability for would-be home buyers.

Supporters of negative gearing argue that its abolition would lead to a ''landlords' strike'', driving up rents and exacerbating the existing shortage of affordable rental housing. They point to ''what happened'' when the Hawke government abolished negative gearing (only for property investment) in 1986, claiming it led to a surge in rents, which prompted the reintroduction of negative gearing in 1988.

This assertion has attained the status of urban myth. However, it is not true. If the abolition of negative gearing had led to a landlords' strike, as proponents of negative gearing usually assert, then rents should have risen everywhere (since negative gearing had been available everywhere). In fact, rents (as measured in the consumer price index) actually only rose rapidly (at double-digit rates) in Sydney and Perth. And that was because in those two cities rental vacancy rates were unusually low (in Sydney's case, barely above 1 per cent) before negative gearing was abolished. In other capitals (where vacancy rates were higher), growth in rentals was either unchanged or, in Melbourne, actually slowed.

Notwithstanding this history, suppose that a large number of landlords were to respond to the abolition of negative gearing by selling their properties. That would push down the prices of investment properties, making them more affordable to would-be home buyers, allowing more of them to become home owners, and thereby reducing demand for rental properties in almost exactly the same proportion as the reduction in the supply of them.

It's actually quite difficult to think of anything that would do more to improve affordability conditions for would-be home buyers than the abolition of negative gearing. It would certainly do more than continuing to give large amounts of cash to would-be first-time home buyers through grants or stamp duty concessions, which historically have served only to increase the prices of existing dwellings and ended up in the pockets of vendors.

There's absolutely no evidence to support the assertion made by proponents of the continued existence of negative gearing that it results in more rental housing being available than would be the case were it to be abolished (even though the Henry review appears to have swallowed this assertion).

Most other advanced economies don't have negative gearing: yet most other countries have higher rental vacancy rates than Australia does. In the US, which doesn't allow negative gearing, the rental vacancy rate has in the past 50 years only once been below 5 per cent (and that was in the March quarter of 1979); in the 10 years before the onset of the most recent recession, it has averaged 9.1 per cent. Yet here in Australia, which does allow negative gearing, the rental vacancy rate has never (at least in the past 30 years) been above 5 per cent, and in the period since negative gearing became more attractive (as a result of the halving of the capital gains tax rate) it has fallen from more than 3 per cent to less than 2 per cent. During that period, rents rose at a rate of 0.8 percentage points a year faster than the CPI as a whole, whereas over the preceding decade, rents rose at the same rate as the CPI.

I'm not advocating that negative gearing be abolished for property investments only, as happened between 1986 and 1988. That would be unfair to property investors. I think negative gearing should be abolished for all investors, so that interest expenses would only be deductible in any given year up to the amount of investment income earned in that year, with any excess carried forward against the ultimate capital gains tax liability, rather than being used to reduce the tax payable on wage and salary or other income (as is the case in the US and most other ''advanced'' economies).

But I'd settle for the recommendation of the Henry review, which was that only 40 per cent of interest (and other expenses) associated with investments be allowed as a deduction, and that capital gains (and other forms of investment income, including interest on deposits) be taxed at 60 per cent (rather than 50 per cent now) of the rates applicable to the same amounts of wage and salary income.

This recommendation would not amount to the abolition of negative gearing - it would just make it less generous. It would be likely, as the Henry review suggested, ''to change investor demand towards housing with higher rental yields and longer investment horizons [and] may result in a more stable housing market, as the current incentive for investors to chase large capital gains in housing would be reduced''.

I could even accept the Henry review's recommendation that ''these reforms should only be adopted following reforms to the supply of housing and reforms to housing assistance'' that it makes elsewhere, even though I disagree with the Henry review's concern that these reforms ''may in the short term reduce residential property investment''.

Sadly, these recommendations were among the 19 that the Treasurer explicitly ruled out when releasing the Henry review in May.

That makes it hard to believe that this government (or indeed any alternative government) is serious about increasing the incentives to work and save - or at least, about doing so without risking the votes of those who borrow and speculate, in effect subsidised by those who don't, or can't.

Saul Eslake is a program director with the Grattan Institute.

Osama's Dirty Mind

2011-05-14T21:06:00.001-07:00

by Asra Nomani

The smut in bin Laden's compound reveals the Muslim world's dirty secret: porn is rife, everyone looks at it—and the U.S. finds it in militants' hideouts all the time.

The discovery of an "extensive" porn library in Osama bin Laden's compound kicked off the predictable wave of jokey headlines. Everyone from the New York Post ("Osama Gone Wild") to Radar Online ("Debbie Does Pakistan") delightfully reveled in the irony of the find.

But should we really be that surprised that leader of one of the world's most notorious terrorist groups was living with a collection of smutty pictures or videos? In the Muslim world, conspiracy theorists are likely to call the porn story a hoax, claiming the stash was planted by the U.S. after killing bin Laden to embarrass him. Pornography, however, is the Muslim world's dirty little secret, rife in even the most conservative realms—including among the extremists.

EPA / LandovCalled fuhsha in Arabic, pornography is considered haram, or illegal, according to most interpretations of Islam, because it publically exposes a person’s awrah, the Arabic word for the zones forbidden from public eye. The debate over pornography, masturbation, and the line between the erotic and the pornographic is a serious one in the Muslim community. Muslims today are negotiating these issues much like the West started doing decades ago.

In fact, the porn found in the bin Laden compound was probably not even much of a surprise to the American forces who discovered it. Porn is frequently found by military teams who engage in “sensitive site exploitation” in raids on militant hideouts and safe houses, according to current and former U.S. military officials. All such finds are evaluated for use “in an information operation (IO) campaign to mold public opinion.”

Hours after the news of the porn stash, Christine Fair, a Georgetown University terrorism expert, wrote on her Facebook page, “Of course they found porn! Every damned jihadi loves porn.” Indeed, the “USG,” or U.S. government has become so accustomed to finding porn, she said, it has “media analysts” designated to analyze the porn looking for “messages.” They work on “document exploitation.”

“Some of the Muslim societies that are the most repressive toward women...also have some of the highest rates of pornography usage in the world."

It’s not clear whether bin Laden himself viewed any of the porn. On CNN, bin Laden's biographer Peter Bergen said he thought the porn wasn’t likely for the al Qaeda leader's “personal consumption.” But its presence speaks to the contradictions that permeate Muslim society.

Last year, Google ran an analysis of its search queries and concluded Pakistan is the leading nation in sex-related, porn content searches, leading Fox News to dub the nation “Pornistan.” Iran came in third on the overall list, and Egypt was fifth. (Google later partially backtracked on its findings, saying that its sample size was too small to be definitive.)

Small or not, we don't need Google to tell us Muslims are looking at porn. Pakistan is home to a bustling porn black market, as well as a lucrative business enterprise and tradition of exotic dancing, called mujras. Just last month, a Muslim member of parliament from the Islamic Prosperous Justice Party in Indonesia resigned after being caught watching porn on the floor of parliament. He was, ironically, a proponent of anti-porn legislation, a hypocrisy that may sound familiar to Americans who are used to seeing their conservative lawmakers busted for the very behaviors they speak out against.

Turkey is the only Muslim country known to allow porn, experts say. But even there, increasing restrictions have kept pace with expanding Islamic conservatism. Earlier this year, three academics in Turkey were fired because a student had shot a porn film as part of his dissertation, “The Porn Project.” (The student ultimately got a "D").

This is not to say that sexuality is entirely repressed in these places. Islam has a very rich tradition of sacred sexuality and eroticism. The prophet Muhammad talked about the “sweetness” of intercourse, and he dealt realistically with issues of pleasure, desire, and even sexual frustration. Children were married when they reached puberty to allow for codified expression of sexuality at the age when it ripens. The prophet told men not to leave their wives for more than six months because sexual tensions would become too high. It’s no wonder that, even while he was hiding out as the world’s most-wanted man, bin Laden was still likely getting laid by his many wives.

But when it comes to porn, Islam draws a clear line in the sand. On YouTube, Islamic leaders and clerics have uploaded a series of tutorials on fighting “porn addiction.” A few years ago, the Center for Islamic Development in Halifax, Nova Scotia, uploaded a video by the center’s director with a simple message: “Islam forbids pornography”. He said many people ask him, “How can I get my willpower back to fight pornography addiction?” His solution was one that clerics often quote: marriage, fasting, and prayer. Another e-sermon, linked to a campaign called PurifyYourGaze.com, acknowledges: “The painful reality for many Muslim brothers is that stopping their use of pornography is incredibly difficult, and for some it feels impossible.”

Not long ago, a Muslim leader published an article titled “Haramic Fantasizing,” outlining the supposed health issues raised by “indulgence in this sin,” which included impotence, blindness, “crookedness and twisting in the back,” and “weakness in the brain and weakness of memory”—symptoms straight out of a 1950s American sex-ed pamphlet. The cleric warned: “The bladder becomes weak,” leading to “involuntary urinary and seminal discharges...It also weakens the nerves...It causes some limbs like the legs to shake and shiver.” Ultimately, he concluded: “Excessive loss of semen is in reality excessive loss of blood. In later years, it can be that such a person will not have the ability to father any children.” The article has led to some serious debates on Muslim forums.

But just as Prohibition didn’t stop people from drinking, warning people of masturbation's alleged risks doesn't make them turn off the porn. While Islamic law is “actually incredibly affirming of the positive aspects of sexuality as they pertain to marriage,” there is a tide in extremist Islam that encourages pornography consumption by “dehumanizing” women and men, says Omid Safi, professor of religious studies at the University of North Carolina Chapel Hill and the author of Memories of Muhammad, an analysis of the prophet Muhammad’s teachings and how people like bin Laden are misrepresenting them.

“Interestingly and ironically,” says Safi, “some of the Muslim societies that are the most repressive toward women or that have the strictest gender segregations also have some of the highest rates of pornography usage in the world. Pakistan, Saudi Arabia, and Egypt rank as among the highest consumers of pornography worldwide. I think what is true of bin Laden, the Taliban, and many of these extremist movements is that there seems to be a link between the dehumanizing of women and the dehumanizing of the entire block of humanity, Muslims and non-Muslims included.”

Our Muslim communities are engaged in a cultural struggle, both spiritual and sexual, that can be illustrated by a paper titled “The Erotic and the Pornographic in Arab Culture.” Written by an Islamic scholar in Khartoum, Sudan, named Adil Mustafa Ahmad, the paper argues that the “erotic,” as “lofty, spiritual, high-minded” pursuits, “has always been accepted and admired by the Arab in literature," and says, “There is no reason why, with the gradual ongoing liberation of the Arab mind from past taboos, it should not enjoy a similar position in the visual arts.”

Clearly, someone in the Osama bin Laden compound agreed.

Asra Q. Nomani is the author of Standing Alone: An American Woman's Struggle for the Soul of Islam. She is co-director of the Pearl Project, an investigation into the murder of Wall Street Journal reporter Daniel Pearl. Her activism for women's rights at her mosque in W.V. is the subject of a PBS documentary, The Mosque in Morgantown. She recently published a monograph, Milestones for a Spiritual Jihad: Toward an Islam of Grace. asra@asranomani.com

Malaysia's Online Poll: What The People Are Saying

2011-04-21T09:39:00.000-07:00

The Star newspaper in Malaysia have one of the highest readership of English news in Malaysia and every now and again they conduct an online poll on certain "hot" topics to see what their readers think of that particular hot topic. Here are a few interesting ones with the poll results and my opinion on the topic. Please leave a comment if you have any views on any one of the following survey topics.

In which language should Mathematics and Science be taught in secondary schools?

Bahasa Malaysia
59% (90141 votes)

English
38% (57213 votes)

Let students decide on their choice of language
3% (4166 votes)
Total 151520 votes

Comment [DN]: I guess the only reason why you would teach Maths and Science in Bahasa Malaysia is because Malay is the national language. That would be the only reason as far as I can see. You can only use Bahasa Malaysia in Malaysia (and maybe Indonesia) but if the students chose to go overseas say mid way through secondary school, they're screwed as they will have to relearn everything in English if they were going to a school/ college/ university in countries like USA, UK, Australia, Singapore etc. as most do.

Should the controversial sex video implicating an opposition leader be screened in Parliament to enable MPs to determine the identity of the man in the clip?

Yes
88% (6914 votes)

No
12% (952 votes)
Total 7866 votes

Comment [DN]: What business is it of the MP's to determine the identity of the man in the clip? What they need to do is work to improve the country by improving efficiency, increasing productivity, stemming out corruption and ensure the poor are given a helping hand and not waste time identifying a dirty old man dong something sleazy on video. The Malaysian voyeuristic tendencies seem to be exposed quite glaringly here.

Do you agree with Kinabatangan MP Datuk Bung Mokhtar Radin that women are lousy drivers?

Yes
42% (4588 votes)

No
58% (6460 votes)
Total 11048 votes

Comment [DN]: Well there are bad drivers on both genders aren't there? I know it's a common theme we hear all the time that women are bad drivers but statistics show more men get into vehicle accidents than women do. Has there been research done to show that women are lousy drivers (compared to men)?

The minimum annual income to be eligible for a credit card has been increased to RM24,000? Do you agree with this?

Yes
38% (8139 votes)

The minimum income should be not less than RM36,000
30% (6529 votes)

The minimum income should be not less than RM48,000
23% (5061 votes)

The minimum income should be retained at RM18,000
9% (1875 votes)
Total 21604 votes

Comment [DN]: The higher the better as far as I'm concerned. Credit is just too easy nowadays. Combine that with people who don't yet know the concept of "spending within your means" equals a dangerous mix that could end up in real pain.

Do you agree that it is time to remove the ethnicity (“Race”) category on forms issued by the public and private sectors?

Yes
86% (15425 votes)

No
14% (2440 votes)
Total 17865 votes

Comment [DN]: Race is irrelevant and should be removed from all forms. It's a disgrace that many times when filling in forms in Malaysia, they ask you to state your race which gives no value and totally unrelated to the matter at hand.

Do you think that having a TV screen in vehicles could lead to road accidents?

Yes
48% (10709 votes)

No
52% (11580 votes)
Total 22289 votes

Comment [DN]: TV screens in vehicles are ok for the back passengers to watch but should not be installed in view of the driver as that would make the likelihood of an accident much much much higher if the driver was watching the TV while driving. Studies have proven that and anyone with 10% of a brain knows that.

Do you think that it's time to implement the concept of plea bargaining in Malaysia?

Yes
62% (4250 votes)

No
38% (2576 votes)

Total 6826 votes

Comment [DN]: Hard one but I think not. Too many a time criminals have gotten away with bloody murder because of this. I say hard one because obviously we would like to lock up as many of these scums as possible but we would not like lazy prosecutors to let these guys go with less than what they deserve. When a case can be proven, the defendant should never be offered a plea bargain.

Should university students be allowed to actively participate in politics?

Yes
48% (3949 votes)

No
52% (4266 votes)
Total 8215 votes

Comment [DN]: Why not? As long as they are not doing anything illegal or immoral they should have the free choice to do anything they want within reason. If a school drop out can get involved in politics and why can't a University student? Are we not living in a free democratic society? Well maybe not according to 52% of respondents.

Should the retirement age in Malaysia be raised to 60?

Yes
53% (11288 votes)

No
25% (5326 votes)

The retirement age should be raised to 65
22% (4586 votes)

Total 21200 votes

Comment [DN]: In this day and age the retirement age should be prolonged to 65 and beyond. Retirement at 55 years of age is too young. While it makes the employment figures look good for the government, it does nothing to the retirees who will have to depend on their paltry EPF for another 30 years.

Would you consider the building of a nuclear power plant as the best option to cater for Malaysia’s energy needs in the future?

Yes
56% (10379 votes)

No
32% (5833 votes)

I need more information on the proposal
12% (2260 votes)
Total 18472 votes

Comment [DN]: While nuclear energy is absolutely clean, it is also tremendously expensive compared to other forms of energy and until someone can tell me how to safely dispose of nuclear waste, I'm totally opposed to nuclear energy. Take Japan recently as a good example, if things go wrong, it could really go wrong.

Should Pulau Redang - which is rated as one of the world’s most beautiful islands - be turned into a getaway for the rich, with hotel rooms costing no less than US$500?

Yes
9% (1832 votes)

No
52% (11166 votes)

The cheaper chalets and hotels should still be allowed to operate
39% (8464 votes)
Total 21462 votes

Comment [DN]: It will be a sad day on earth when the almighty buck keeps ordinary Malaysians out of Pulau Redang, one of the most beautiful Islands on earth. The Island belongs to all Malaysians, hence everyone should be able to enjoy it's beauty.

Do you think that forming a special inter-faith committee can help promote religious understanding and harmony in Malaysia?

Yes
43% (4712 votes)

No
57% (6183 votes)

Total 10895 votes

Comment [DN]: Unfortunately, many believe (me included) that the Interfaith Committee is all smoke and mirrors and a diversion from the real issues. In Malaysia, race and religion are too intertwined with politics where the government use race and religion to stoke the flames of the different groups of people to their political gain. Disgraceful!

Are you willing to spend between three and 10 times more on energy-efficient bulbs as your contribution towards reducing carbon emission and saving the environment?

Yes
72% (5413 votes)

No
28% (2074 votes)

Total 7487 votes

Comment [DN]: So pleased with the survey results. I am too. I love our environment and we should stop abusing it so whatever I can do, I'm all for it even if it costs 10 times more!!

Should Malaysia adopt a minimum wage plan?

Yes
84% (10232 votes)

No
16% (1983 votes)

Total 12215 votes

Comment [DN]: Good and bad about minimum wages. I can give good reasons for not having a minimum wage but in Malaysia's case, because the standard of living is so low, I would support fully a case for a minimum wage. A minimum wage is ok, but if it's too high it can lead to higher unemployment and be problematic for businesses.

Do you agree with Tun Dr Mahathir Mohamad’s claim that the Sept 11 attacks on the US could have been staged as an excuse to mount attacks on the Muslim world?

Yes
25% (6716 votes)

No
75% (20185 votes)

Total 26901 votes

Comment [DN]: Dr M is a nut case. Enough said.

Should banks subsidise the RM50 service tax for credit cards?

Yes
80% (15058 votes)

No
8% (1460 votes)

Consumers should be wise and only keep credit cards they require
12% (2197 votes)

Total 18715 votes

Comment [DN]: Of course everyone would like to pay less tax but why should a bank pay your tax for you? You request for a credit card, you get it and use it and there is an associated service tax with having that credit card, so why would you think other people should subsidize you?

What is your view on rapper Namewee's video, which pokes fun at TNB?

It is not in our culture to do something like this
8% (2934 votes)

Namewee is only making a point about TNB's services
92% (31808 votes)

Total 34742 votes

Comment [DN]: If a rapper wants to poke fun at a company, what is wrong with that. Heard of freedom of expression?

How much should a Filipino domestic helper be paid?

Not more than RM600
46% (4165 votes)

RM601 to RM800
28% (2570 votes)

RM801 to RM1,000
14% (1233 votes)

RM1,001 to RM1,200
4% (393 votes)

RM1,201 to RM1,400
7% (670 votes)

Total 9031 votes

Comment [DN]: While many Malaysians would like the convenience to have their dinner cooked, housed cleaned and constant help with the children 18 hours a day, 6/7 days a week many are only willing to pay RM600 (US200) per month for this privilege. Malaysians are getting more and more affluent but it seems financial equality is not top on their agenda. Well if financial equality is too much to ask for then how about fairness for the pain, toil and sweat most maids go through?

More on the Housing Bubble

2011-04-19T06:41:00.000-07:00

by Kris Sayce

According to Money Morning reader, Bill the word used in knitting isn’t “pearl”, but rather it’s “purl”. No wonder we were so bad at it if we couldn’t even get the basics right!

Apologies to knitters everywhere.

Get in now, before it’s too late! This morning, Eric Johnston at The Age writes:

“Prospective borrowers have been urged to get a home loan while they can.”

Although, after reading the article, we’re still trying to figure out who’s doing the urging.

It can’t possibly be Matthew Davison of Merrill Lynch. He’s quoted by Mr. Johnston saying:

“We believe the strain on the household budget is too big to ignore, and banks don’t accurately measure household costs.”

That’s hardly a ringing endorsement to encourage someone to take out a $400,000 loan.

Perhaps it was something else Mr. Davison said:

“These pressures could possibly prompt the banks to update household budget models, thus tightening mortgage lending standards.”

Again, it’s not what you’d call urging someone to load up on debt.

But we’re not going to pin the blame on Mr. Johnston. We’re not 100% sure how things work in newspaperland. But we believe the journalist writes the story and the sub-editor comes up with the headline.

In this case, the sub-editor has come up with a headline that directly contradicts the story. But that doesn’t surprise us. Given the huge amount of advertising revenue the papers get each month, the mainstream press has a vested interest in holding off the property bust as long as possible.

And if that means encouraging more people to take out huge loans now, just as the market has turned down, then so be it. After all, they were happy to cajole punters into the market at the peak, so why not when property is just a little bit cheaper!

Trouble is, it’s gonna get a whole lot cheaper.

Half-priced millionaires’ row

Before we crack on, two other gems sent in by readers. First this sent by Money Morning reader, Greg, “Hedges still millionaires row despite drop”.

The article notes:

“Four years ago, before the global financial crisis hit, 199 Hedges Avenue fetched $17.5 million. This month the four-bedroom, six bathroom, beachfront home [Ed note: marvellous water views?] in Mermaid Beach reportedly sold for almost $8 million.”

A quick bash of the Canon LS-100TS calculator tells us that’s a price drop of – [gulp] – 54%!

Amusingly, the articles states, “Mr Newlands [chairman of the Real Estate Institute of Queensland, Gold Coast] said property on Hedges Avenue would always remain popular and at the high end of the market.”

Obviously not popular enough for the seller who has taken a 54% bath. That’s where the spruikers have made their fatal error: assuming higher prices are sustainable because an area is popular.

Then Money Morning reader Natalie dropped us this email saying:

“Did I hear David Airey from Real Estate Institute of Australia wrong? The ABC read his statement as saying there is ‘no housing shortage in Australia.’”

Click here for the link and decide for yourself.

Here’s a transcript of Airey’s comments:

“I don’t think there’s been a bubble, and I don’t think there’s any bubble to burst. The indicators are that this has been a very slow softening but with the huge increase in the number of established homes for sale added to properties off the plan sales continuing to rise, we’ve just seen a lot of stock which isn’t moving.”

Property spruikers have to tread a fine line. Using their own supply-and-demand theories for why property prices had to rise, they’ve backed themselves into a corner.

Because using the same supply-and-demand argument you would logically have to say prices will fall… Instead the spruikers have to keep running with the “there’s no bubble” argument. Even if it means ditching the claim about a housing shortage.

That way they can claim prices didn’t really go up – even though they said they did – and therefore if prices didn’t really go up then they really can’t go down.

Even though the proof is evident in Queensland where prices have fallen by 50%, and even Melbourne where prices fell 6% in just one quarter!

For some reason, every time a spruiker talks we keep hearing circus clown music!

Idiot editor

But still, the spruikers don’t like hearing what we’ve got to say. Ex-Money Morning reader Michael sent this note today:

“Your [sic] an idiot!!!

“Please unsubscribe me from this fools [sic] emails.

“The scribes are right, you don’t understand the housing market, and its [sic] blatantly obvious by this ridiculous tirade trying to disprove economics 101 – Demand & Supply.

“Cheers,
“Michael.”

And this from Money Morning reader Rob:

“Please tell Sayce to stop blathering[…]

“its [sic] becoming an embarrassment, he’s like a bogan amongst uni students[…]

“he is really showing how clueless he is about Economics, he’s just a trader from London, for heaven’s sake[…]

“do you have nay [sic] idea why he is so anti-property?? more people have become wealthy through property than any other medium, its [sic] slow now, but who cares, property investors are long term[…]

“his ignorance is turning him into a celeb, like that kid from Melbourne.”

Thanks for the advice guys. But we don’t need any schooling in economics. Any branch of economics that believes in never-ending price rises and mythical housing shortages, is something we can do without.

Besides, we’re quite happy with what we’ve picked up ourselves.

As for demand and supply, again we point out that demand and supply isn’t just about demand and supply. It’s about quantity and price too. Ignore that at your peril.

Not only that, but we dispute the idea that property makes people wealthy. Sure, there’s a period from the early 1980s to the mid-2000s where many did well from the inflationary credit-fuelled bubble.

But we don’t see that it’s made people wealthy. In fact, we argue the opposite. We argue that most who benefited from the property boom believed it would last forever. So what did they do? That’s right, they took their winnings and leveraged it up again on the false dream of negative gearing.

Wealth is only real wealth if it’s tangible. Equity in property isn’t tangible. For most property investors, if they liquidated their portfolio today and paid out all their debts, they’d barely be any better off than when they started.

In fact, those who started within the past five years are likely to be significantly behind when all costs are taken into account… property as a wealth builder? Do me a favour.

Your house isn’t an investment

And finally, we find we’re in the strange position of agreeing with a banker. Bank of America [NYSE: BAC] CEO, Brian Moynihan is quoted saying:

“It’s sobering to think, but some people shouldn’t be thinking of (their home) as an asset. They should be thinking of it as a great place to live.”

We couldn’t agree more. We’ve said it for years. And mostly we’ve been ridiculed for saying it. But that won’t stop us. Owner-occupied housing isn’t an investment. It’s an expensive consumption item.

Once you ditch the idea that a house is an investment you’ll realise it’s just not worth paying the current ridiculous Ponzi credit-fuelled prices that houses are selling for right now.

There's Nothing Generic About Housing

2011-04-19T06:38:00.000-07:00

By Kris Sayce

In today’s Money Morning: Words from a credible analyst… Knit one, pearl one… Fairy tales dressed as fact… Defining a market… More “marvellous water views”… It’s not in the genes... Housing debate – more soon…

Why There’s Nothing Genetic About Housing

Of all the emails we receive into the Money Morning mailbox, the most enjoyable are the patronising ones.

Not surprisingly, a big chunk of them are from property spruikers… mostly telling your editor we don’t understand the property market, so why don’t we just “shut the heck up!”

That’s right, today we’re back to smack the property spruikers round the ears…

Words from a “credible” analyst

The funniest email we’ve gotten was from a “credible property market analyst and advisor”… that’s his own words. Extracts of the email are below:

“Just been reading your (comical) writings on the housing bubble.

“There is no bubble! There is no “one” property market!

“The property market across most (not all) of Australia has been flat for the last 12-18 months. Sure, there are some locations which have experienced (on paper) losses of 10-15% over a short period, but many locations have experienced between 0% and 8% growth over the last year. That’s hardly catastrophic.

“Show me when the Australian property market has ever crashed by more than 10% in any given year. Show me when the ASX has declined by greater than 10% per annum.

“Property is a long-term asset class so looking at growth rates across small periods such as 3 months or even 18 months are somewhat irrelevant (especially if the investor has followed a scientific research process and selected a quality investment property with specific fundamentals). Yes, ‘fundamentals’ – there are such things but DIY investors wouldn’t be aware of them. Looking at the performance of an investment property over several years is more appropriate.

“Some of the comments you’ve made in respect to housing supply and demand are wrong. I’ve read the entire publication produced by the Federal Government’s Major Cities Unit.

“I could rant for ever as to why there is no ‘housing bubble’ but I’d be wasting my time because you are clearly pro-shares and like to beat up how good the sharemarket is by being (unreasonably) critical of the property market. That’s poor form and unprofessional. Rather than bag your “opposition”, try sticking to what your area of expertise is. If property is so bad, why don’t you live in a tent or a caravan?

“I am a credible property market analyst and advisor. I aim to help people invest wisely in property. You prefer shares, I prefer property. I don’t cr@p on about the sharemarket dropping 4% in a few days because of a tsunami, or the last stock market crash, or that I know many people whos [sic] superannuation has declined by $100,000s over the last few years. It’s just poor form. The truth is, people can make good money from shares and property but there’s a lot more to know about each asset class…

“A final word on the property bubble. Michael Matusik has produced a good article which sums it up pretty well so I’ve attached it for you. I’ll also add this:

Australia’s banking practices are nothing like those in US and Europe where property markets are still struggling
Residential property is an essential commodity (we all need to live somewhere)
Modern science is allowing us to live longer and foreigners will continue to migrate to this great country because of our employment opportunities, culture, vast open spaces, and general quality of life
History is proof that the nation just can’t build anywhere near enough properties to keep up with population growth
Do you think that the cost of other essential commodities such as milk, bread, and medical services are likely to increase or decrease over time?
Do you think that the wages of builders and associated skilled labour who build and renovate properties will increase or decrease over time?
Do you think that the cost of raw land will increase or decrease over time?
Do you think that the timber, cement, bricks, steel and other material which we use to build will increase or decrease over time?
Do you think that Australian’s will suddenly quit their obsession with renovating their family home?

“Stick to your knitting!”

Our dear old departed grandmother tried to teach us knitting once. We never got the hang of it… we couldn’t understand the jargon… what did “pearl one” mean? So we gave it up.

But back to property. For someone who claims to be a “credible property analyst and advisor”, there’s a certain lack of credibility in the reasons for Australia not having a property bubble.

Fairy tales without facts

It’s just the same old excuses. Making statements as though they are true – “we all need to live somewhere” – without considering the facts.

It’s true that we all need to live somewhere. But that doesn’t mean house prices always go up. We all need to eat. But that doesn’t mean we can always afford to buy the same type of food.

If bananas are $20 a kilo, most people will stop buying bananas and buy another, cheaper fruit instead.

The same with housing. When house prices are too high, people will stop buying. But it doesn’t mean people become homeless. It means they make alternative arrangements. They’ll buy a smaller unit rather than a house, or they’ll rent a unit or house, or they’ll house share – yes, people still do that.

Or any number of alternatives.

But this doesn’t mean there’s a housing shortage.

As we’ve written before, spruikers often blather on about property being all about supply and demand. They’ll then bang on about a chronic housing shortage – by the way, there is zero, I repeat, zero evidence to support a housing shortage.

And don’t tell me that’s rubbish, because it’s true. There’s not a single jot of evidence to support the housing-shortage theory.

We’re expecting a big response to that claim. But let me make something clear, quoting statistics and ratios dreamed up by a banking analyst won’t qualify as evidence.

What they tend to forget is supply and demand is also influenced by quantity and price. What they also forget is the price can change without an increase or decrease in demand or supply. So simply saying, “it’s all about supply and demand” misses the point.

But we do like it when the spruikers try to school us in markets,“There is no one property market in Australia” is the latest cry. “The market is made up of lots of different markets.” “It’s wrong to talk about ‘a’ property market.”

D’uh.

We know that, but they aren’t telling us anything new. It’s the same as the stock market. The stock market is made up of hundreds of different markets. They’re called companies.

Defining a market

But it’s still valid to talk about “the stock market” or “a stock market”. Simply because the valuation of one company can have an impact on the valuation of another seemingly unconnected business.

For instance, if resources stocks look overpriced, investors will ditch those stocks and look at other sectors, such as retailing or banking. That could force resources stocks down and retail and banking stocks up.

But it’s also possible for investors to ditch all stocks if they believe the entire market is overpriced. That can mean even fairly priced stocks are smacked down – we know that for a fact because in late 2008 and early 2009 we tipped stocks such as Retail Food Group [ASX: RFG] and Cash Converters [ASX: CCV] which were trading lower than where we believed they should be.

Property is no different. If prices slump in Queensland it can have an impact on house prices in Melbourne. How so? Because investors or even owner occupiers may consider buying in Queensland rather than Melbourne.

So, as investors and owner occupiers move to invest in Queensland, it will have an impact on prices in Melbourne – would you still pay $400,000 for an apartment in Melbourne when you may be able to pick one up for $200,000 on the Gold Coast?

Who knows? Some would, but some wouldn’t.

So, we’ll keep talking about the property market, if our “credible” analyst friend doesn’t mind.

We also like this idea that losses are only “paper” losses. Really? So when a property goes down in value and the mortgage payer is paying out thousands of dollars a year on interest, that’s a “paper” loss is it? No, we thought not.

Besides, we’re already past the period where losses were on paper, losses are actual. Just refer to the beachside Queensland properties I highlighted a couple of weeks ago… property prices have fallen by half in some areas of Queensland. And it’s catching.

The market that was supposed to be immune from price falls – Melbourne – has seen median prices slump 6% in the past year. Not only that, but the mainstream press is even highlighting the losses.

According to News Ltd:

“Melbourne home property prices drop $400 a week in two-year record plunge”

Now, let me ask you. If you’re thinking of negatively gearing a property, and you read the value of the property will fall $400 per week, will you still buy that property?

Not when the only reason for negatively gearing a property is to benefit from capital growth. If you’re losing out on the income andthe capital, only a nutter would still buy an investment property.

More “marvellous water views”

But back to Queensland. Today’s Australian Financial Reviewreports:

“Despite bids on 30 of the 36 units, none was sold…

“An opening bid of $65,000 for an 88 square metre one-bedroom unit was the lowest offer made. One of two 512sq m penthouses attracted a maximum bid of $600,000 after it was listed last year for $1.58 million.”

Oh, and by the way, the article is headlined, “Resort liquidation sales goes to water”.

In other words, this bricks-and-mortar investment was so spectacularly bad, the original vendors couldn’t flog any of the units, and it turns out the liquidators have fired blanks as well.

While we’re on the subject, Money Morning reader, Shane sent us a link to a property in Rainbow Bay on the Gold Coast. The real estate agent blurts:

“Rainbow Bay Landmark Property Slashed by $400k!”

The property is now on the market for $1.399 million. Interestingly, the property yields gross income of $46,000 per year. Minus rates of $7,620, you’re looking at a yield of 2.7%... deduct interest expense and other costs, and… oh boy, what a crappy return for a market that’s not likely to see price appreciation for at least ten years!

That’s a whole lot of paper and real losses.

We know investing in shares isn’t perfect, but unless you use margin lending, at least you don’t keep forking out cash every month to keep your share investment.

And if you buy a good dividend-paying stock the investment will pay you… that’s probably a weird concept for a “credible” property analyst – an investment that pays you money, rather than one where you have to pay money each month in order to keep the bank from repossessing it.

We make no bones about it: buying property today is riskier than buying small-cap stocks on the stock market. Do the numbers for yourself. A massive mortgage with zero growth equals thousands of dollars lost each year.

But what about other points made by the “credible” property analyst. Let’s quickly knock each one over…

“Australia’s banking practices are nothing like those in US and Europe where property markets are still struggling” – who says? What about the secret loans from the US Fed? What about the increase in bad loans on Bank of Queensland’s books? What about the fact that Australia’s banks have more than half their loan books exposed to the Aussie housing market.

American and European banks were considered safe before everyone figured out they weren’t.

“Residential property is an essential commodity (we all need to live somewhere)” – as we’ve already pointed out, this is an irrelevant argument. People adjust their lifestyles to suit the circumstances. Next…

“Modern science is allowing us to live longer and foreigners will continue to migrate to this great country because of our employment opportunities, culture, vast open spaces, and general quality of life” – again irrelevant. Japan has one of the longest life expectancies of any nation, and so do the Mediterranean countries… that didn’t stop property prices falling in those countries.

Besides, all the bluff and bluster about people migrating to Australia has ground to a halt. The latest numbers show net migration has slumped from last year’s peak.

“History is proof that the nation just can’t build anywhere near enough properties to keep up with population growth” – where’s the proof? That’s right, there is none. In fact, the reality is the opposite. History shows that the nation has built plenty of properties to keep up with population growth.

As we say, people adapt. If someone can’t afford to buy a house they’ll seek alternatives. That’s why you see a boom in high-rise developments and the subdivision of land.

“Do you think that the cost of other essential commodities such as milk, bread, and medical services are likely to increase or decrease over time?” – They will decrease once the inflation Ponzi scheme collapses in a heap. But clearly our “credible” analyst hasn’t seen the news about the “milk wars”.

And as for medical services, these prices only rise thanks to immoral government intervention in the health industry that causes prices to rise. Similar to housing, but neither are guaranteed to last forever – the government can’t possibly steal enough money from taxpayers to keep these Ponzi schemes going forever.

“Do you think that the wages of builders and associated skilled labour who build and renovate properties will increase or decrease over time?” – We don’t know, but neither does our “credible” analyst. He can only guess. What we do know is that there’s nothing set in stone to say the price of labour always has to increase.

At the moment, rising wages are just another function of Ponzi inflation and credit growth. Neither are guaranteed to last forever.

“Do you think that the cost of raw land will increase or decrease over time?” – The same as above. The situation in other countries shows prices of land can fall too. Australia isn’t immune to this.

“Do you think that the timber, cement, bricks, steel and other material which we use to build will increase or decrease over time?”– Same as above… Ponzi inflation and credit.

“Do you think that Australian’s will suddenly quit their obsession with renovating their family home?” – Yes. Why not? All the nonsense about Australian’s having a genetic affinity with their homes, is just that – nonsense.

It’s not in the genes

It’s often said Australians have an affinity to property due to their European heritage. Especially those from Italian and Greek backgrounds… just remind us of how the Greek and Italian economies and housing markets have fared?

But before we do, that was just too easy. The property spruikers really should try harder. But then again, it’s pretty hard to keep the myth going when there aren’t any real facts to back their case.

Back to the genetics of house prices. According to The Economist:

Source: The Economist

So much for genetics. According to this chart, the only bubble left to pop is the Australian house price bubble.

But as we know, the bubble has already popped. You’ll see the data flow through to the statistics soon, and then it’ll only get worse.

And the housing shortage will be revealed for what it really is – a sham.

In fact, we’re guessing the popped bubble will be clear for all to see by the time your editor takes part in a housing debate in Sydney at the end of May or early June.

We can’t give you the full details yet, but when we can we’ll let you know. It’ll be a perfect opportunity to confront a couple of housing bulls square on.

Until then, just sit back and wait for Australian houses to take an even bigger hit. As we wrote a few months back, the end of 2011 or 2012 could be the time for opportunistic buyers to make low-ball offers to desperate sellers.

We don’t think that time has come yet, but it’s certainly worth keeping a close eye on the property market for bargain basement sales.

Cheers.

Kris SayceFor Money Morning Australia

Julia Gillard's Carbon Tax: The Straw that Broke the Camel's Back

2011-03-18T05:26:00.000-07:00

by: Cranky Ramblings

The straw that broke the camels back (the camel being the Australian people and the straw being the carbon tax) is the now infamous announcement of the introduction of a carbon tax by the middle of next year by the Prime Minister Julia Gillard, flanked by the greens and independents on her left and right. Not so much that action was being done to tackle climate change but more so as Tony Abbot’s attempt to portray this as the lie of the century, successfully nonetheless and also yet another Labour tax and the people have had enough of taxes.

Before the election Julia Gillard said in no uncertain terms that a carbon tax will not be introduced under a government she leads and whalla a carbon tax is now being introduced effective the middle of next year. Why is Tony Abbot jumping up and down crying for a people’s revolution when he himself has lied and changed his position numerous times in the course of his turbulent political career? Political opportunism of course. How much tax per tonne of carbon, what are the compensation to households and businesses most affected and any other detail have not been worked out and Tony Abbot being the political opportunist he is jumped on Labour and unleashed the mother of all scare campaigns by telling the public that EVERYONE will be hit with the big fat tax that will do nothing to lower temperatures and asked for a “People’s Revolt”, even though the government hadn’t announced what the details of the tax was. Some pathetic trolls in his party started calling the Prime Minister names by comparing her to the Libyan dictator Muamar Gadaffi. I know the Liberals are still hurting from the last election but childish name calling will not help their cause to get back in government.

Now climate change and the policies to tackle climate change is not only a thorny subject but it’s also a complicated one. Everyone has a view, politicians, bloggers, journalists, mom, dad and my pool man but the fact remains that the science should prevail. Leading prominent scientists have shown that climate deterioration has occurred throughout the decades of abuse by man induced pollution. In my opinion, there is no doubt about this no matter what the sceptics say or what arguments they put forward. The science is there, it’s not subjective and it cannot be disputed. There have been arguments that both sides fudge figures/ reports and whatnot to add weight to their case. While that may be true, if you know basic science then you would be able to know the basic concepts of climate pollution and understand a little of what the scientists and deniers are saying and for now I can make very little sense in what the deniers are saying. Could the majority of leading climate scientist all be wrong about climate change? Do we dare take the chance or are willing to sacrifice now for our children’s future or are we happy to listen to Tony Abbot and his merry men like Nick Minchin and Barnaby ‘one million equals one billion’ Joyce?

Why is this carbon tax so unpopular? Well firstly because Tony Abbot is really good at what he does, that is to oppose. I’ll have to admit he is a really good opposition leader because he is great to highlight other people faults and put his catchy slogans so it remains in the minds of the voters. He’ll do a shit Prime Minister but he’s a really good opposition leader, I’ll give him that and every step of the way he’s given the government grief. He did it will the alcopop tax, the NBN, the flood levy, the mining tax and now this carbon tax. If not for his destructive manner in which he’s constantly putting the government on the back foot, he would have been removed by his party, because as a person and leader, he’s a pretty shit character. He swears, can’t keep his cool, is not very articulate, doesn’t have any conviction or principles and is really careful to say only what he thinks people want to hear (well most politicians do that).

Now let’s look through the smoke and mirrors of Tony ‘I do not have a policy just good to criticize’ Abbot and see other reasons why the carbon tax is so unpopular.

1. The government hasn’t sold it well. It announced this with no detail and didn’t explain how the tax would hurt the biggest polluters while giving some reprieve to the middle to low income earners by way of rebates.

2. The labour party is perceived as being a party that only knows how to tax. TAX, TAX, TAX! They lost the billion dollars worth of reserves built under the Howard years. The opposition has blamed the government’s failed policies on the NBN, pink bats, school halls rort, free money given away to stave off a second quarter of negative growth and a host of other wasteful projects. With the reserves now gone, the government has to go back to the people on anything not allowed for in the budget e.g. when the floods hit Queensland the government proposed a flood levy to build back the state even though that would have been a legitimate reason to bring the budget further into deficit but because Tony Abbot had done such a good job spooking the government, they dared not even contemplate further deficits to their already fragile finances resulting in further bad public policy, a good example of Tony Abbot's destructive force. There is a sense in the community that the people are fed up with the waste and taxes and the backlash has probably got to do more with that than the policy to tackle climate change put forth by the labour party..

3. The government has let Tony ‘The Climate Change Denier’ Abbot tell the world that

Australia

“is going it alone”. This in fact is actually not true and many other countries like New Zealand, Denmark, Finland, France, Ireland, the Netherlands, Sweden, the UK, Norway, Canada and the US already have a full or partial carbon tax policy. The likes of China and India have changed their tune from two years ago and are now looking seriously at various ways to reduce their emissions and building cleaner coal fired stations and demolishing the dirtier ones (still coal but nonetheless a good start).

China

is also investing huge amounts of money into wind and solar power which is getting cheaper every year. So Australia is not going it alone, in fact as the leading climate commissioner for the EU said “it would be good if

Australia

could join us”.

4. There are a bunch of climate change sceptics, Liberal lackeys and shock jocks that hate the Labour party so much that you just can’t make them see the good that a carbon tax could bring before an ETS takes effect. That is also something that the Labour party have not explained well in that the carbon tax is not a direct tax on the people but on the polluters and it’s just a temporary tax until an ETS kicks-in in 2015, an ETS which the Australian people were overwhelmingly in favour of, as evidenced by the landslide victory by the Labour party in 2007 when they got the people’s mandate to tackle climate change in favour of Howard’s climate change sceptics (Abbot being one of the most vocal sceptics saying “climate change is crap”)

Let’s put it this way. The Labour party was described as on “training wheels” when they took office four years ago and that is probably not far off the mark but what is the alternative? Abbott and his henchmen? Right wing sorry arse racist shadow ministers like Cory Benardy and Scott Morrisson who have a better fit in “One Nation” than any progressive political party in Australia or is it Barnaby Joyce who doesn’t know his millions from his billions or maybe Joe Hockey who after criticizing the government’s budget during the election stalemate reluctantly released his with a $11 billions black hole (which we now know why he was so reluctant to release in the first place). But the person that takes the honours though is no other than their fearless, budgy smuggler, opposition leader himself Tony Abbot. A vindictive, lost for ideas, good only to criticize, foul mouth, bad policy, no conviction or leadership budgy smuggler wearing politician who will soon be dumped as Liberal leader as soon as Newspoll does not show progress for his party. As unpopular as Julia Gillard and the government are, she’s still ahead of Tony Abbot in terms of preferred PM but the Liberal party is ahead of the Labour in the two party preferred polls and that’s what counts and that’s what is keeping Abbot as Liberal leader.

The Labour party needs to sell this tax better and not just to spend tax payers dollars on advertising. They should sell it with informative, backed by facts arguments. The price for carbon need not hurt the general population if you bought less products that are carbon intensive to produce, or if you used less energy which is the underlying goal for the introduction of a carbon tax. The whole purpose of a carbon tax is to reduce our reliance on dirty carbon and invest the tax coming from this into greener, cleaner energy for our future, not to tax and give back to “soften the blow” etc. which is giving the people confusing signals and lost confidence that this government has any proper policy direction.

Libya Spits on the International Community and for Good Reason

2011-03-18T05:22:00.000-07:00

by Cranky Ramblings

So what the hell is going on in Libya? Gadaffi and Co are killing their own citizens mercilessly and the international community who in the past have embraced Gadaffi, mainly for his oil were so slow to react till the deaths stemming from the genocide piled on into the thousands and only until public sentiment was too much for the fearless politicians do we now have a loosely set up “No Fly Zone” which is probably too little too late, especially those who lost their lives in the cruel hands of the evil dictator, a dictator who in the past was embraced by the international community due mainly to his country’s vast reserve of oil.

You have to sometimes wonder why we even have politicians at all. Is it for their bumbling policies that have created all this chaos in the world? Is it for their lack of convictions and clueless leadership which only panders to the sentiments of their electorates and citizens? The only reason America did not agree to a “No Fly Zone” initially was because they did not want to get into another war in a Muslim country as the two wars they are currently involved in (Iraq and Afghanistan) are hugely unpopular back home. As far as I can see, the true leadership in relation to this crisis is nowhere to be found. The international community failed in Darfur, failed in Srajevo and have now failed in

Libya

I can’t seem to work out where these international diplomats stand on the issue of Libya. Are they for Gadaffi or against him? Do they think he is a terrorist or a reformist? The conflicting signals they give is enough to give you a permanent migraine. On the one hand they say Gadaffi must stop killing his own people and a no fly zone is the best way to do this and in the same breath say that a caution and restrain will need to be observed as a protracted war in Libya is the last thing the world wants as it could affect the oil rich region. So once again it boils down to profits before principle and profits before people. It’s all about OIL, OIL, OIL!

You either stop Gadaffi with determination and conviction and use everything at your disposal to get the job done even if that means bombing his arse into smithereens or you might as well keep out of it altogether. Standing by the sidelines “condemning” Libya, imposing meaningless travel and economic sanctions has no effect to the Libyan regime and no use to the revolution especially to the people who are staring down the barrel of the gun waiting for the inevitable “POW” that is going to blow their brains into a million little pieces. The weakness of the sanctions has been proven ineffective in the past and once again in this case it has proven to be of no use. Thousands are dead and thousands will continue to die. Thank you for your leadership “International Community”. They sit in their cushy little offices making decisions for other people and telling others how best to live their lives with very little concept of the reality of it all and have proven time and again to be weak, gutless, fence sitters and ineffective. Unfortunately, in this case and many others in the past, lives have been lost because of them.

I don’t even know why we need the UN Security Council, G8 etc. etc. making all these life and deaths decisions. As everyone knows every country has their own agenda. China and Russia will most times veto military action on rogue states and you can only guess their motives for that. Being far less than transparent and democratic in their own governance, they probably do not want to set too much of a precedent in which the standards they themselves cannot achieve. Who knows, but what I do know is while these diplomats argue, innocent lives, lives that depend on the international community for help are lost by a cruel, ruthless dictator once named “the Mad Dog of the East” by Ronald Reagan, a term which shows how much ahead of his time the former president was. If only goons like Sarkoszy, Blair and their cronies had a fraction of the foresight Reagan had, it may be so much different today.

Comemorating Women's 100 years yesterday the government is at it again.

2011-03-09T19:57:00.000-08:00

The social engineers and central planners are at it again.
“Companies to face mandatory reporting in bid to boost gender equality”, announced yesterday’s The Australian.
The article explains:
“Firms with more than 100 workers will face spot checks and mandatory reporting on the numbers of women they employ and their position under tough new measures aimed at boosting gender equality in the workplace.”
Our first response is, why 100? Why not 99 or 101?
100 is an arbitrary number. But it’s a round number.
It means a firm employing 99 men and no women gets off scot-free, while a firm employing 99 men and 1 woman could be in the soup, and subject to on-the-spot inspections.
The paper quotes Minister for the Status of Women, Kate Ellis:
“There will be regular spot checks to ensure that the information that organisations are providing to the government actually matches how they conduct their day-to-day business.”
What business is it of the government to know how many men and women you employ?
It makes you wonder why on earth would anyone ever start a business in Australia, when the bureaucrats think up rubbish like this.
Not satisfied with successive Liberal and Labor governments burdening the Australian manufacturing industry with so much red tape that there’s almost nothing left, the bureaucrats now want to attack any business with 100 or more staff – regardless of the industry.
Now, we’ll assume the government will decide there are some industries that are male dominated and some industries that are female dominated. Those industries may be able to avoid imposts from the Australian Sex Police.
But that’s a big assumption… maybe a naïve one… yes, it’s naïve, I can barely believe I even thought of it!
But let’s say they exempt some industries – which industries? At what point does the government decide one industry is fair game for male/female dominance, whereas another industry deserves equality?
And what about job roles within an industry or business? Is it OK for certain roles to be male/female dominated, while others must be equalised?
That’s a lot of questions.
But what it shows you is yet again, bureaucrats who’ve lived a life of shuffling paper and dreaming up new regulations will now tell bakeries, shoe shops, car manufacturers and mining companies how many staff should be employed and what gender those employees should be.
Think of it this way. I don’t know about you, but every time I’ve popped into the local Brumby’s or Baker’s Delight most of the time the bakers are male.
As for the counter staff, that’s probably fifty-fifty between men and women…
Now, I’ll be honest the closest your editor comes to baking is chucking the odd cake in the oven for the missus’ birthday, so we’ve got no idea about the ins and outs of being a baker.
But our guess is there’s probably little reason why more women can’t be bakers… if they want to.
And here’s the thing. Is the bakery industry full of rampant misogynists? The Secret Brethren of Bakers can’t stand the thought of allowing feeble women into the clan?
Or is it just that over time, bakery work is something that’s traditionally been done by men. Just like many other jobs are male dominated – such as the garbo industry. And for that fact, many jobs are female dominated – primary school teachers for example.
Unfortunately, central planners and social engineers can’t abide freedom of choice. They can’t cope with the idea that people should have the freedom to do as they wish and work in the jobs they want.
And they also can’t abide business owners being able to choose between who they employ and who they don’t employ. Why should a government bureaucrat have as much say in the hiring of workers as a businessman or woman who started the business from scratch with their own capital on the line?
If a business owner only wants to employ men only then so what. If a business owner only wants to employ women only then so what.
But as I say, central planners don’t like that. They need to set quotas.
They need to meddle and decide women and men should be forced into jobs against their will just so a government quota can be met.
It’s similar to the Review of Australian Higher Education Final Report in December 2008 from the Department of Employment and Workplace Relations. The report suggested:
“The target proposed for higher education is that 40 per cent of 25- to 34-year-olds will have attained at least a bachelor-level qualification by 2020. This will be quite testing for Australia as current attainment is 29 per cent.”
But what if only 35% want to go to university? Is the intention that the government would force an extra 5% to go to university, or manipulate the market to ensure the target is met just so a stiff-necked bureaucrat can tick a box?
The fact is, when bureaucrats get involved in things they know nothing about, it causes more problems.
Bureaucrats know nothing about running a business. Yet every day they’re telling entrepreneurial businessmen and women what to do… “No, you can do that unless you file this form, and if you don’t we’ll fine you.”
As an example, look no further than page 53 of Monday’s Australian Financial Review (AFR). It contains a CV of Martin Parkinson, the man who this week has taken over as Number One from “Emperor” Ken Henry as Treasury secretary in the Australian federal bureaucracy.
According to the AFR, Number One’s career highlights are:

Source: AFR
Photo: Dr. Alex Cowie’s iPhone

Now, there are a few blanks in there, such as 1980-81 and 1993-97. So Number One could have been doing something useful in the private sector for all we know.
But even if there was a stint in the private sector, it was clearly nothing the AFR thought worthy of mention.
So we can only assume it’s a career of academic dreaming and bureaucratic meddling.
The most troubling entry is the note for 1990, “PhD at Princeton, studying under Ben Bernanke, now chairman of the US Federal Reserve.”
Personally, that’s the sort of thing I’d keep off my CV. But for bureaucrats, statists, central planners and social engineers, studying under (only figuratively) Ben Bernanke is clearly a badge of honour.
The roll of bureaucracy is to inhibit business. It’s to stifle innovation and stop entrepreneurs from… well, entrepreneuring.
But in the end, will the statist Workplace Gender Equality Agency actually achieve anything?
Yes. It will annoy people. And it’ll put another hurdle in front of businesses. But what it won’t do is lead to gender equality – for a start (here’s some breaking news) there’s no such thing as equality.
Everyone is different. You can’t be equal. Humans aren’t some manufactured widget from a factory that can be made identical to millions of other widgets.
But that’s exactly what the bureaucrats would like humans to be. That way they can pigeonhole you into certain tasks based on their urge to control the economy and control you.
Governments and bureaucrats are good for nothing. All they know is how to tax and how to control people with violence and threats of violence.
Yet for some unknown reason bureaucrats are painted by the mainstream press as heroic figures. People who supposedly have given up the opportunity to earn mega bucks in the private sector in order to serve the people in the public sector.
In reality, for the most part the bureaucratic top-dogs are nothing more than insecure control freaks who wouldn’t survive two seconds in the private sector. So to make up for their inadequacies they feel the need to boss others around.
We can hardly imagine a sorrier bunch of individuals if we tried.

Regards,

Kris Sayce
for Money Morning Australia

Melbourne's Costly Hobby

2011-02-09T05:01:00.001-08:00

If the property value goes up every seven or eight years and it doubles, which I understand, I agree – how many years do you have to hold the property for the property to make enough cashflow… to cover your mortgage, your rates, your water and all your outgoings? Ladies and gentleman it’s sixteen years. So the property can double in seven years, it can double in eight years but for you to walk away from your job it takes sixteen years… before it makes enough money for you to stop going to your job to support it… so what happens is we find people go ‘I’m worth a fortune’, and they are. But they still have to go to the job every day at 6.30 in the morning because they’ve still got to put money into the fortune!”

That’s probably the most sense we’ve heard from a property “guru” in years.

Money Morning reader Pat brought it to our attention. The words come from property financing whizz Rick Otton.

The fact is, most property investors are in the same financial position as the doddery old English Lords of the manor… asset rich, cash poor, and debt heavy. The Lords have to sell off the family silver to stay liquid.

And property investors have to work harder than before to pay for what is no more than an expensive hobby.

Investments shouldn’t cost you money, they should make you money… that’s why they’re called investments. If something is consistently giving you a negative return then it’s either a bad investment… or it’s not an investment at all.

The fact is, if you keep pouring in more cash into than you get in return you may as well take up trainspotting or stamp collecting. At least you’d probably get some enjoyment from it rather than getting yourself deeper into debt with the bank.

Of course, we dispute the argument that properties double in value every seven years. Simply because the numbers don’t support the claim.

I know you’ve probably seen the charts and numbers that “prove” it, but they don’t. What you see is a neat number trick.

What the numbers actually show is that property prices have typically doubled every seven to ten years, but only since the mid-1970s. Over the previous seventy years house price growth was broadly flat. There were periods of price rises and periods of price falls.

“Ah,” you may say, “But if you take an average house price from 1900 and double it every seven years you’ll get to today’s average house price.” That’s the other number trick the spruikers like to use.

Sure you do, but all the growth has been in the last thirty-odd years. Averaging out a number over two distinctly different periods doesn’t provide a fair reflection on the true price action.

It would be like taking the price action of the Nasdaq market from 1998 to 2001 and saying stock prices always move up like that. You and I know that would be misleading.

But what’s more important is Rick’s comment that it takes sixteen years for a property to be cashflow positive. Just remember that’s sixteen years in which the house has supposedly doubled in value twice.

Yet it’s not until the seventeenth year that the property investor is able to walk away with a net profit!

Now think about what the payback will be when property values don’t double every seven years. How long will you need to hold a property for it to be cashflow positive? Twenty years? Thirty years? Seventy years?

I don’t know about you, but seventy years seems like a long time to wait in order to make a $1 profit on a several-hundred-thousand-dollar investment.

I know the stockmarket has been pretty crummy recently. But at least the buying, financing and holding costs are low by comparison.

And that wasn’t the only tip-off we got from a reader this week.

It was a tip-off that contains a bombshell backing our call for a house price crash – a house price crash that’s already started based on what we’ve seen of the housing market – even though the official indices claim prices haveplateeeeeaued.

What does it tell us? Well, if we thought we’d put the stake through the heart of the housing shortage myth, housing index firm Residex has hammered the stake through to the table.

According to its numbers, far from there being a housing shortage, Melbourne has a surplus of 18,000 properties! That’s right, surplus… not a shortage. And that doesn’t take into account the huge land release promised by the previous Victorian state government.

If that wasn’t bad enough for the Melbourne market, get this… Melbourne also boasts the lowest rental yield of any Australian city at just 3.3%.

That’s the gross yield of course.

If it takes the average investor sixteen years to be cashflow positive on a property, and Melbourne has below average rental yields, just think how long it could take Melbourne property investors to be cashflow positive.

You’d clearly need the staying power of Methuselah to get any kind of financial benefit from buying a Melbourne rental property!

Boy, is the Melbourne housing market set to plummet once buyers figure out there’s no rush to buy into this over-priced market.

By our back-of-the-envelope reckoning, the Melbourne median price needs to drop about $150,000 (about 30%) just for the rental yield to reach the national average of 4.35%.

And, as you know, when markets fall they never fall to the average, they always overshoot.

Looks like we may have underestimated with our forecast of a 40% drop… who’s to say it couldn’t be a whole lot worse.

Not that the rest of the country is safe. Another Money Morning reader sent us this email:

“I thought you might be interested to learn about Mandurah in Western Australia in respect of the so called “housing shortage” we have (that argument has been a bit quiet recently).

“…It has been interesting to see that the hundreds of apartments that had been completed when I was here last year are still vacant. I have had a walk around tonight to get a better gauge to see how many lights and flickering televisions could be spotted and my calculations are that maximum 25% of these waterside apartments have people living inside them. There are “for lease” and “for sale” signs everywhere as well as a couple of developments that have stopped half way through!

“Developers and bankers must be hurting big time sitting on these expensive and impressive looking buildings and bleeding heavily while waiting for gullible buyers!

“Moral of the story is that I would be steering clear of WA companies involved in construction related activities.”

As it happens, Residex calculates that Perth has a housing surplus of 6,000.

Our advice for today?

If you’re a property investor (but not necessarily an owner-occupier) then sell Melbourne and sell Perth… unless you’re planning on living to the age of 969… because that’s how long it’ll take to be cashflow positive on your so-called investment.

Regards,

Kris Sayce
for Money Morning Australia

The Price of Malaysia's Racism

2011-02-09T04:59:00.001-08:00

By JOHN R. MALOTT

Malaysia's national tourism agency promotes the country as "a bubbling, bustling melting pot of races and religions where Malays, Indians, Chinese and many other ethnic groups live together in peace and harmony." Malaysian Prime Minister Najib Tun Razak echoed this view when he announced his government's theme, One Malaysia. "What makes Malaysia unique," Mr. Najib said, "is the diversity of our peoples. One Malaysia's goal is to preserve and enhance this unity in diversity, which has always been our strength and remains our best hope for the future."

If Mr. Najib is serious about achieving that goal, a long look in the mirror might be in order first. Despite the government's new catchphrase, racial and religious tensions are higher today than when Mr. Najib took office in 2009. Indeed, they are worse than at any time since 1969, when at least 200 people died in racial clashes between the majority Malay and minority Chinese communities. The recent deterioration is due to the troubling fact that the country's leadership is tolerating, and in some cases provoking, ethnic factionalism through words and actions.

For instance, when the Catholic archbishop of Kuala Lumpur invited the prime minister for a Christmas Day open house last December, Hardev Kaur, an aide to Mr. Najib, said Christian crosses would have to be removed. There could be no carols or prayers, so as not to offend the prime minister, who is Muslim. Ms. Kaur later insisted that she "had made it clear that it was a request and not an instruction," as if any Malaysian could say no to a request from the prime minister's office.

Similar examples of insensitivity abound. In September 2009, Minister of Home Affairs Hishammuddin Onn met with protesters who had carried the decapitated head of a cow, a sacred animal in the Hindu religion, to an Indian temple. Mr. Hishammuddin then held a press conference defending their actions. Two months later, Defense Minister Ahmad Zahid Hamidi told Parliament that one reason Malaysia's armed forces are overwhelmingly Malay is that other ethnic groups have a "low spirit of patriotism." Under public pressure, he later apologized.

The leading Malay language newspaper, Utusan Melayu, prints what opposition leader Lim Kit Siang calls a daily staple of falsehoods that stoke racial hatred. Utusan, which is owned by Mr. Najib's political party, has claimed that the opposition would make Malaysia a colony of China and abolish the Malay monarchy. It regularly attacks Chinese Malaysian politicians, and even suggested that one of them, parliamentarian Teresa Kok, should be killed.

View Full Image

Associated Press

Ethnic Indian Malaysians protesting in 2007.

This steady erosion of tolerance is more than a political challenge. It's an economic problem as well.

Once one of the developing world's stars, Malaysia's economy has underperformed for the past decade. To meet its much-vaunted goal of becoming a developed nation by 2020, Malaysia needs to grow by 8% per year during this decade. That level of growth will require major private investment from both domestic and foreign sources, upgraded human skills, and significant economic reform. Worsening racial and religious tensions stand in the way.

Almost 500,000 Malaysians left the country between 2007 and 2009, more than doubling the number of Malaysian professionals who live overseas. It appears that most were skilled ethnic Chinese and Indian Malaysians, tired of being treated as second-class citizens in their own country and denied the opportunity to compete on a level playing field, whether in education, business, or government. Many of these emigrants, as well as the many Malaysian students who study overseas and never return (again, most of whom are ethnic Chinese and Indian), have the business, engineering, and scientific skills that Malaysia needs for its future. They also have the cultural and linguistic savvy to enhance Malaysia's economic ties with Asia's two biggest growing markets, China and India.

Of course, one could argue that discrimination isn't new for these Chinese and Indians. Malaysia's affirmative action policies for its Malay majority—which give them preference in everything from stock allocation to housing discounts—have been in place for decades. So what is driving the ethnic minorities away now?

First, these minorities increasingly feel that they have lost a voice in their own government. The Chinese and Indian political parties in the ruling coalition are supposed to protect the interests of their communities, but over the past few years, they have been neutered. They stand largely silent in the face of the growing racial insults hurled by their Malay political partners. Today over 90% of the civil service, police, military, university lecturers, and overseas diplomatic staff are Malay. Even TalentCorp, the government agency created in 2010 that is supposed to encourage overseas Malaysians to return home, is headed by a Malay, with an all-Malay Board of Trustees.

Second, economic reform and adjustments to the government's affirmative action policies are on hold. Although Mr. Najib held out the hope of change a year ago with his New Economic Model, which promised an "inclusive" affirmative action policy that would be, in Mr. Najib's words, "market friendly, merit-based, transparent and needs-based," he has failed to follow through. This is because of opposition from right-wing militant Malay groups such as Perkasa, which believe that a move towards meritocracy and transparency threatens what they call "Malay rights."

But stalling reform will mean a further loss in competitiveness and slower growth. It also means that the cronyism and no-bid contracts that favor the well-connected will continue. All this sends a discouraging signal to many young Malaysians that no matter how hard they study or work, they will have a hard time getting ahead.

Mr. Najib may not actually believe much of the rhetoric emanating from his party and his government's officers, but he tolerates it because he needs to shore up his Malay base. It's politically convenient at a time when his party faces its most serious opposition challenge in recent memory—and especially when the opposition is challenging the government on ethnic policy and its economic consequences. One young opposition leader, parliamentarian Nurul Izzah Anwar, the daughter of former deputy prime minister Anwar Ibrahim, has proposed a national debate on what she called the alternative visions of Malaysia's future—whether it should be a Malay nation or a Malaysian nation. For that, she earned the wrath of Perkasa; the government suggested her remark was "seditious."

Malaysia's government might find it politically expedient to stir the racial and religious pot, but its opportunism comes with an economic price tag. Its citizens will continue to vote with their feet and take their money and talents with them. And foreign investors, concerned about racial instability and the absence of meaningful economic reform, will continue to look elsewhere to do business.

Mr. Malott was the U.S. Ambassador to Malaysia, 1995-1998.

Aussie House Prices Hit the Tipping Point

2011-01-24T20:29:00.000-08:00

Aussie House Prices Hit
the Tipping Point
Tuesday, 25th January 2011
Melbourne, Australia
By Kris Sayce

Aussie House Prices Hit the Tipping Point

Reading The Age reporting on the housing market over the last couple of weeks has been like watching the Comedy Channel.
At any point we expect Jon Stewart or Stephen Colbert to fly out of the page to tweak our nose and give us a cheeky wink.
First we had, “Land sales plummet, adding to price squeeze”.
Fairfax reporter Chris Zappone wrote:
“Land sales have dropped to decade lows, further eroding the nation’s housing affordability as prices continue to rise, according to RPData and the Housing Industry Association…
“Even as the pace of sales slows, Australia faces a roughly 200,000-unit housing shortage, HIA estimates, driven by complicated planning processes, a tax policy that encourages buyers to hold multiple homes, and the slow release of suitable land by real estate developers and governments.”
So what we have is falling demand equalling a housing shortage.
How does that work then?
Surely, if the bulls were right and there is a housing shortage, buyers would be ripping the arms off real estate developers to get land at any price.
Yet as The Age reports:
“Land sales in the city [Melbourne] staged an even bigger retreat, falling 74.2 per cent in the year to September, to about 1500, the lowest since the March quarter of 1991.”
Cameron Kusher from RPData is quoted saying:
“Undoubtedly something needs to be done to address affordability constraints and governments at all levels need to realise that it is a serious problem.”
Turn the numbers around and what you’ve got are buyers saying they won’t pay stupid prices. Prices are too high. And they need to fall. But the mainstream doesn’t look at it like that.
As far as the mainstream is concerned, a lack of demand equals a lack of supply. Therefore prices are bound to go higher… because there’s a housing shortage.
Of course, as you should know, the so-called housing shortage doesn’t exist. What you’ve got in most cases is over-the-top expectations of sellers.
I can give you a good example… about two years ago, a house in the Sayce family’s street sold for around $750,000. That was roughly 60% more than houses in the same street were going for three years earlier.
Today, two homes in the same street are on the market in the mid to high $600,000s. One of these homes has been on the market for over a year. By our estimate, they’re dreaming if they reckon they’ll get anything close to what they’re after.
If they knock 10—20% off the price they might be in with a chance… More likely they’ll have to lop 30% off the reduced price to have a chance of selling.
And based on letters we’ve received from Money Morning readers, it’s a similar story elsewhere in suburbia. Prices on decent, relatively modern homes are 30% lower than similar homes were two years ago.
Trouble is, they’re still overpriced!
Yet so far, this familiar story has failed to show up in the dodgy housing index numbers. We doubt that will be the case for long. In fact, based on the comical analysis of the housing market by ANZ Bank [ASX: ANZ], we’ll bet the numbers will start showing up before this year is out.
According to reporting of the ANZ report – which we haven’t got our hands on yet:
“The bank estimates that house prices will plateau this year, at a little more than $550,000, on average.”
Well, that’s something. At least it’s better than the ‘house prices will double’ rubbish we’re used to reading.
Even so, the banks still can’t admit it. They haven’t got the balls to say house prices have and will fall. They’ve always got to put a spin on it. In their world house prices either go up, plateau or become more affordable… but they never go down.
Of course, the simple reason for that is the banks don’t live in the real world. They live in the crazy banking world where house prices must go up.
You and I know why the banks have to push house prices higher – because the banks’ balance sheets are so leveraged to the housing market.
It’s similar to if you have a margin loan on a share portfolio. While share prices go up you’re laughing. You’re getting a lovely return on your capital. But as soon as prices fall, unless you’ve reduced your exposure, you’re going to be in a bunch of trouble.
And that’s exactly what the banks are exposed to… falling house prices.
But as we say, even with price expectations falling by 30%, Aussie homes are still way overpriced. Yesterday the 7th Annual Demographia International Housing Affordability Survey was released.
It shows that housing in every Australian town and city surveyed is either ‘Seriously Unaffordable’ or ‘Severely Unaffordable’.
For example, in Sydney the median house price is 9.6-times the median household income.
In Melbourne the median house price is 9-times the median household income.
And on the Sunshine Coast the median house price is 8.4-times the median household income.
But we thought it would be fun to see how the ratios had changed since the Commonwealth Bank of Australia [ASX: CBA] published its misleading figures a few months ago.
You’ll recall the bank printed the following slide in a presentation it gave to international investors:

The bank was trying to show that Aussie house prices weren’t overpriced compared to cities overseas. And a quick glance at that chart would make you think the bank was right.
But, we could smell a great big stinking juicy rat…
We were the first to point out at the time that the CBA had pulled a fast one. Not that the dumbos in the mainstream press noticed. They simply parroted what the bank told them.
The bank’s crime? It used numbers from Demographia to highlight the high ratios in overseas markets. But it used lower numbers (using a different methodology) from UBS for the Australian cities.
If it had used Demographia data for all cities the table would have looked like this:

Just a slight difference! Using the Demographia numbers would have shown the house-price-to-income ratios to be 50% higher than the bank claimed.
Needless to say the CBA shifted the blame and claimed it wasn’t trying to mislead at all. Of course that didn’t stop the bank from keeping the slide in the presentation and embarking on a world tour to hoodwink investors into buying the bank’s bonds.
So, how do the numbers stack up now? Take a look at this:

Yep, house prices in Sydney and Melbourne are considerably more expensive than other major cities. And, whereas prices-to-income ratios in other major cities have largely stabilised, in Sydney and Melbourne the ratios have gotten much worse.
But how does that gel when we claim house prices have already started to fall?
It’s simple. Right now, many sellers falsely believe house prices will recover. So they’re holding on… for dear life. They’re still in a dreamland thinking they’ll get the same price that sellers were getting two or three years ago.
But soon enough they’ll start to sell, and those figures will filter through to the dodgy house price indices. And eventually the numbers will even start to show in the Demographia survey.
That’s when sellers will figure out the glory days have gone. And that’s when you’ll get the rush to the exit. Especially when the fabled baby-boomers start flooding the market with their un-mortgaged properties.
What do they care whether they sell for $600,000 or $500,000 when they bought the house for $50,000 thirty years ago? OK, they will care, because it’ll be a big chunk out of their retirement savings. But the point is, once they get it that house prices don’t always go up, they’ll sell as soon as you can blink.
But, The Age article did get one thing right:
“Australian house prices are expected to finish this year flat, amid signs that a slowdown in price gains could become ‘entrenched’, according to ANZ.”
The bit they got right is the ‘entrenched’ part… not the house prices finishing flat this year. House prices will finish the year lower. There’s no doubt about that.
What will become entrenched is the realisation that house prices don’t always go up. Investors and buyers have already started to figure that one out. And the longer prices stay where they are, the more convinced buyers will be that there’s no rush to tuck into the market.
That’s happened in the UK and US where property buyers no longer see housing as a get-rich-quick money-making goldmine.
“But what about the chronic housing shortage?” you may ask. It doesn’t exist.
Remember the daft numbers from the National Housing Supply Council? That’s the government body responsible for spreading the myth about the shortage. The NaHSC is where the banks and property spruikers have gotten their ammo to support the shortage myth.
Before you swallow the myth check out how the NaHSC came to its conclusion. Here’s the table from the 2008 report:

Source: NaHSC

We remember seeing it for the first time and laughing heartily. We picked these numbers apart over a year ago. Yet still the mainstream peddles the myth.
The numbers to support the housing shortage are based on 9,000 homeless people sleeping rough, 35,000 families who live with friends and relatives, 13,000 families who live in caravan parks, and 26,000 people who… well, this one is really ridiculous.
These 26,000 people are imaginary. They no more exist than the Loch Ness monster…
What it’s saying is that because the rental vacancy rate is, say 2%, another 26,000 homes are needed in order to get the vacancy rate up to 3%. In other words, there isn’t a shortage of rental properties at all. It’s just that the vacancy rate is lower than the long-term average.
What it’s saying is that to solve the so-called housing shortage the market needs more empty houses!
We liken it to a shop claiming there’s a milk shortage when they’ve got ten bottles of milk left over at the end of the day when they used to have fifteen left over.
It’s not a shortage. It’s a surplus you clowns.
But even better than that, the NaHSC wasn’t happy to just add all the dodgy numbers together. It had to round the number up to the nearest 5,000. So even if we accepted their dodgy numbers – which we don’t – the number has been exaggerated by 2,000 dwellings that are merely the result of rounding-up!
What a joke. But that’s the government for you.
Yet these are the numbers the banks and spruikers base their statistics on when they carp on about a housing shortage.
Make no mistake, all the evidence is pointing towards a massive drop in the price of Australian housing. For many the drop has already happened. Just look at the houses on the market in your area and you’ll see the asking price is well below the levels of two years ago – and still they aren’t selling.
The UK and US housing bubble made a loud pop when it burst. It seems in contrast the Aussie market is suffering from a slow deflation as the air comes out of it.
Either way, it’s bad news for sellers right now. But a year from now it’ll be great news for buyers. As I wrote a couple of weeks ago, keep your eye on the housing market… but don’t buy yet… your time will come.
Cheers,

Kris Sayce
For Money Morning Australia

Virgin Mobile and Broadband is a Joke

2011-01-15T08:51:00.000-08:00

A few years ago I signed up with Virgin Broadband and regretted ever since the first day I signed up. It was a 2 year contract because they gave me a modem for free. Go figure, a cheap piece of shit they call a modem that doesn't even work and they lock you in for two years. Anyway, to cut a long story short I complained that their product was shit and I wanted them to relief me of the contract because it did not perform as expected and they refused. They gave me the run around, asked me to try troubleshooting the modem, exchanged one piece of crap to another etc. etc. I got fed up, took them to the TIO (Telecommunications Industry Ombudsman) and won!

Fast forward a few years and deJavu. I called Virgin to ask them when my wife's mobile phone contract ended and guess what, they said they could not provide me with the date because they didn't have it. That detail was with another department and I had to call a 1300 number. I sent back an email telling them it was BS and proceeded to call the number. After waiting for 30 minutes (which is good for Virgin, I've known people who have waited for more than 4 hours) this loser answered the phone and proceeded to ask me so many questions around why I wanted to know the expiry date of the contract. I proceeded to tell her that I ask the questions and her job was to answer them and not the other way round and pleaded with her not to waste both out times and give me the date immediately so we could both get on with our lives. FINALLY, I got the date and it happened that it expired in August, so it was out of contract and I could finally leave the sorry excuse of a Telco. The disgusting way in which they gave me the run around and their strategy to try to keep customers who so obviously want to leave is shocking in the least. This made my decision to leave so much easier.

I was then curious to know if I was one of only a few who had continuous problems with Virgin and decided to troll the net to see what other people thought of Virgin, it's products and it's service and it turned out that the loathing for Virgin was more pronounced, intense and widespread than I had expected.

See below some comments from people about their experiences with Virgin (I've only posted a fraction of the comments as there were pages and pages of negative comments, more pages than would fill ten books of "War and Peace"):

ShaktiPosted: 12/01/2011