[Max Carnage]

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Dear PM: risks are worth it in reform
David Hetherington and Tim Soutphommasane From: The Australian September 18, 2010 12:00AM

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The economy: Australia's strong economic performance masks serious vulnerabilities. Our consumption is underpinned by sustained house price rises. Yet house prices are out of alignment with historical price-to-rent ratios. The Economist's fair value housing index rates Australian property as the most overvalued of any of the 20 markets it tracks, with a 60 per cent overvaluation. Any correction will be traumatic.

This is compounded by our low levels of household saving. Australia's household savings rate has dropped markedly in the past 30 years. This leaves households without any buffer to deal with another global slowdown, which remains a possibility.

A global double-dip recession would constrain Australia's access to foreign capital, restrict business investment, drive up interest rates and increase loan defaults.

Full article: http://www.theaustra...x-1225925198044

Only a small part of a larger argument. I'm just impressed to see somebody so casually link our 'strong' economy to the housing bubble, rather than the usual reverse: that house prices can't fall because of the strong economy.

[tom]

Nice article.

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Sometimes this will involve introducing market mechanisms in areas of public provision: water, electricity, health and education. On other occasions, it will require the redress of failures in existing private markets: greenhouse emissions in energy, information overload in financial services, undersupply in housing, market power in telecoms.

I am pretty certain the lack of a supply response in Sydney is a result of the governments own actions. Rather than redressing market failure it, the government, is the failure itself. It must set a target price for broadhectare residential parcels and then release sufficient land into the residential zoning till the market trades at that level. Not have a targetted number of homes released, and say right we released 10,000 homes those nasty developers are not building on it. Then release more they cannot own the entire cumberland basin if it is trading at $1million per acre, Ill give you the tip. Let the market decide how many homes it weants the government must release enough that the price never goes into bubble territory at least in new supply of land. Australia is one country that has this option, many don't constrained by oceans etc. Why then with vast plains even around Sydney do we have near to the worst bubble in the world?

[Sean]

all the D&G that's fit to print...