Supply-Side Constraints and House Prices
The Economist finally has something to sensible to say on house prices, reporting on research into the effects of supply-side constraints on house prices in US cities. There is hope for The Economist yet! The original paper is here.
Meanwhile, David Smith highlights the sorry record of house price crash predictions in the UK:
The first housing-crash story I could find in the present cycle came in 1996, when one Bob Beckman predicted a 20-year fall in prices. There was another batch in 1997, when the fear was that Labour’s election would hit house prices hard.
In 1998 and 1999, when the stock market was booming, there was a steady trickle of housing-crash predictions, building further when the stock-market boom turned to bust in 2000. The September 11 attacks on America persuaded many that housing was about to take a dive and, in the three years since, talk of a housing crash has built up to a crescendo.
David Smith’s skepticism is refreshing. It is interesting that the debate about house prices in the US, Australia and the UK is very similar, yet so many commentators remain wedded to country-specific explanations for what is clearly a global price shock to this asset class.
posted on 15 February 2005 by skirchner in Economics
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Throw the FIRB on the Bonfire
The FT calls for a Ludwig Erhard-style bonfire of Australian controls, with the FIRB on top of pyre:
the Financial Times called on the Australian Government to overhaul its foreign investment regime and scrap the body that implements it, the Foreign Investment Review Board.
It said the usual suspects, notably “businesses that would find it convenient to have the [WMC] takeover stopped” had lobbied against Xstrata being cleared to have a tilt at WMC, but the real problem was Australia’s foreign investment screening system, which was “a protectionist relic” that sat badly with the Australian Government’s free market principles.
Other nations, including the United States, also screened incoming investments “but few operate regimes that are more opaque, unaccountable or open to political and bureaucratic manipulation”, the FT said, adding that the Government’s power to block deals or conditionally approve deals on “national interest” grounds relied on “a criterion so vague as to justify almost anything”.
Noting that the OECD had recently urged the Australian Government to accelerate the pace of economic reform, the newspaper concluded that “when Canberra next makes a bonfire of costly, perverse and inefficient regulations, the FIRB regime should be at the top of the pile”.
It is unfortunate that it takes a foreign newspaper to give this process some critical scrutiny. The local press generally view the politicisation of the ownership and control of equity capital as unproblematic. The above extract is taken from Malcolm Maiden, who also feels compelled to offer at least some defence of the indefensible.
posted on 14 February 2005 by skirchner in Economics
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Ross Gittins: Conspiracy Theorist
Ross detects a conspiracy:
When I wrote in last week’s column that the OECD hadn’t advocated a cut in the top tax rate, I was wrong. It did just that on page 65 of its report, although this proposition didn’t make it into the summary assessment and recommendations. Wonder why.
I don’t know Ross. Maybe that’s why they call it a ‘summary.’
posted on 12 February 2005 by skirchner in Economics
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Woodside Revisited
Ian Harper on yet another outbreak of capital xenophobia:
As in the case of the Shell/Woodside deal, the Treasurer receives no guidance from the law as to what he should consider when weighing the national interest. The Foreign Investment Review Board will offer advice based on its interpretation of the act but the Treasurer is free to decide for himself what constitutes the national interest and whether XStrata’s ownership of WMC would compromise it.
Harper explores the contradictory logic employed in both episodes. But the real issue here is not the merits or demerits of foreign ownership in a given case. It is that the ownership and control of equity capital in Australia is subject to sweeping ministerial discretion, not to mention the bureaucratic discretion exercised by the ACCC. The rule of law is almost entirely absent, which encourages rent-seeking behaviour and the misallocation of equity capital.
UPDATE: The Treasurer is being praised for making the ‘right’ decision by not blocking the XStrata bid. Steve Lewis says it is ‘a decision that will enhance Australia’s reputation as a haven for foreign investment,’ and that ‘…the Howard Government has sent another powerful signal that Australia is open for business.’
In fact, the decision sends a signal that any attempt to upset the status quo in relation to the ownership and control of Australian equity capital will have to run the gauntlet of the political process, allowing special interests to seek outcomes they could not otherwise secure in the marketplace. Rather than praising the outcome, we should be damning the process, which has Australia running the fifth most restrictive FDI regime in the OECD.
posted on 11 February 2005 by skirchner in Economics
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Capitalist Internationale?
The WSJ’s Bret Stevens reports from the WEF meeting in Davos:
At an Internet café late Thursday night, I am set upon by two Swiss undergrads who earlier in the day had participated in an antiglobalization rally. How, they would like to know, do I justify my presence at this malign gathering of the Capitalist Internationale? O that it were the Capitalist Internationale, I reply. I explain that this year’s Davos is purpose-built to satisfy all of their grievances. They think the Forum’s concern for the poor and the environment is a meaningless gesture at best and probably a devious trick. I think: “The capitalists will sell the rope from which they will hang.”
(Thanks to John Rogers for the pointer).
posted on 02 February 2005 by skirchner in Economics
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Australia Day, 2005
After 217 years, this outpost of the Anglosphere is probably in better shape than it has ever been. The economy has been growing at one of the fastest average rates in the OECD over the last decade, the unemployment rate is at near 30 year lows, real investment as a share of GDP is at the highest levels in nearly half a century and net Commonwealth public sector debt has been all but eliminated. Consumption growth and a widening current account deficit, far from being a sign of weakness, indicate confidence in Australia’s future growth prospects. Perhaps less widely known is the fact that Australia has become a net exporter of direct investment capital in recent years. At least some of Australia’s current account deficit is thus funding the globalisation of Australian business.
Against this backdrop, the Prime Minister’s approval rating is at its highest levels ever. This is not unrelated to the fact that the federal opposition Labor Party is in disarray following its crushing election defeat last year. The abandonment of foreign and defence policy bipartisanship under former Labor leaders Crean and Latham is at least partly responsible for this outcome.
Having said all that, Australia still has much unrealised potential. With the anti-globalisation bloc in the Senate having been marginalised following the last federal election, there is little excuse for not completing the task of modernisation and integration with the global economy begun in the early 1980s. 2005 is likely to go down in history as the year in which this historic opportunity to finally bury isolationism, protectionism and paternalism was either seized or squandered.
posted on 26 January 2005 by skirchner in Economics
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