Bubbles, booms and bonanza – Solving the Australian property Rubik's Cube

Without a doubt it’s one of the most confused and manipulated demographics within the Australian economy – yet year in and year out we have commentators both here and afar trying to solve this puzzle.

What is clear is that very few can solve this puzzle given they quickly get lost deep in the permutations of the mathematics by focusing too much on theory and not enough on the practice.

Bubbles, booms and bonanza – and yet for some strange reason they have this creative ability to conjure this monumental market disintegration creating this almighty property Armageddon.

This week, I was particularly interested to read commentary from Fabienne Michaux, head of Standard & Poor’s Rating Service Australia and New Zealand. In particular: “One of the peculiarities of the Australian system is our huge reliance on foreign debt and most of that is channeled through the banking system.”

“Although the rise in house prices didn’t look like a speculative bubble the market is certainly looking fully priced and possibly a little overpriced, particularly in Sydney and MELBOURNE which account for such a large percentage of the national stock.”

Finally, an assessment that I totally agree with, “fully priced and possibly a little overpriced”.

When the Murray inquiry is released later this year, many of the answers to solving the Australian property Rubik’s Cube will be answered – all that remains to be seen is whether or not the Abbott government will act on the findings.

The major problem for Australian property is that the governments ignore the problems preferring to feed from these highly profitable property ”rivers of gold” – which is keeping the governments’ heads above water due to the ongoing taxes. Capital gains tax, land tax, stamp duty, rates – the list keeps going on.

GST was introduced by the Howard government on 1 July 2000, replacing the previous federal wholesale sales tax system and designed to phase out a number of various state and territory government taxes, duties and levies such as banking taxes and stamp duty. Well hello!!  We still have them today despite the promise that they would be removed. Actually, on the property side these taxes have mysteriously been increased since the GST was introduced.

Back in 2010 when the Henry tax review was handed down the Treasurer Wayne Swan responded that “Labor would never reduce the existing tax concessions on negative gearing and capital gains tax”. What we were seeing back then was an approximate 20% rise in house prices over that year where it was obvious from the report that tax breaks were inflating house prices. At the time former New South Wales auditor – general commented: “It doesn’t do Australia any good to have a government which, when they see these rational arguments from a very well experienced team, give it three minutes’ thought and then just ditch it.”

If we are to try and solve this Australian property Rubik’s Cube the next inquiry Mr Murray should be given is does Australia need middle and third tier governments? The problem here is the governments rely totally on the multitude of taxes which keeps them in jobs so that on retirement they can collect a handsome pension. Making such a decision like those contained within the Henry tax review would be committing some type of political treason.

You very simply can’t solve the problem when the politicians who make the decisions have a clear vested interest of self-preservation. This can’t be solved until such time as Canberra admits that we have a problem – despite reports confirming that change is needed, the preferred option is to then ignore it, which is confirmed when you see that the Abbott government does not even have a Housing Minister.

So let’s just think about this and how we can possibly solve this dilemma? Imagine the Liberals and Labor offering bipartisan support for the creation of (let’s get creative and call it) the Australian Economic Master Plan (AEMP). So let’s appoint David Murray as the chairperson, then appoint another nine pre-eminent business people to join this committee to actually closely investigate and then recommend what such a AEMP should look like, what needs to be implemented and what needs to be removed, which let’s say may take 12 months to determine. That would leave twelve 12 to discuss, then it is presented at the next federal election by referendum.

The problem previously has been that these conversations were quickly placed in the too – hard basket (for political reasons). It’s clearly time now to remove the politics by listening to what a totally independent body recommend – that way we just may solve the Australian real estate Rubik’s Cube.

Whatever the case we at least need to start this conversation – as it’s long overdue.