Steve Keen says the Australian property bubble could keep going through 2015

Steve Keen, head of economics, politics and history at London’s Kingston University, envisages the RBA making a couple of cuts this year - "and possibly more than that".

"The unemployment in Australia now is the worst it’s been in 10/15 years, and the only thing keeping it up is the housing bubble because that is pumping borrowed money into the economy, people are spending that money, and of course also foreign buyers pumping money and buying real estate," he told Lelde Smits from the Finance News Network .

"Those are really the only two massive inflow sources into the economy.

"If the housing bubble pops then that inflow also stops and we therefore have a downturn driven by having finally a housing bubble bursting.

"So those dangers are there, you can see plenty of reasons for the cash flow spigot to be turned off, I can’t see many ways of turning it on anymore."
 
He would be surprised to see it below the 2%, but wouldn’t be amazed.

He  suggests what he sees as the bubble could keep going, "but what it means is we are more and more fragile on the bubble continuing indefinitely".
 
Asked for the catalyst for the property bubble to pop, Keen sees two things.

"Partly the economy itself slowing down so much that the negative returns in rental become excessive.

"Those people are having carrying costs and of course passing those carrying costs on to the Australian public through negative gearing, but they none the less have those carrying costs to handle.
 
"And also, if there is anything going wrong in China.

"Things going wrong in China can go in both directions, we have a serious downturn in China, then it’s quite possible Chinese capital could respond by going offshore and do more buying overseas.

"So a slowdown in China, because it is a speculative slowdown, doesn’t have to mean a slowdown in demand for Australian real estate."