Hi Dr. Murray, I've been meaning to comment on your blog for awhile and now that you are quoting Steve, I thought I would reply a few things.
Firstly, let me just say, I got to know you from your interview with Martin around the time the Housing Hijack book came out and been following you since. [I have bought a bunch of your books and share it with my family/friends.] The reason I like your commentary is because they are simple, make sense and you seem to be reasonable and polite even when you are not agreeing with the podcaster/interviewer.
The reason why I wanted to comment was because, lately, if I can be frank, some of the commentary are less making sense. Maybe it is me. Maybe it's the way I am interpreting your messages. (I am an engineer, not an economist). But I have a hard time agree with some of them. [I can see the same frustration by Jonathan in this podcast with you; this one and the one before I couldn't remember the title]
Anyways, here are things that comes to my mind listening to the podcast
1) Market - you seem to take the view of Neoclassical idea of Market. Leave it alone and it will work itself out. Apology if you are not, but I think, when it comes to housing, you have this view with five equilibria that Market is working as it should be and it is okay(?); hence there is no housing crisis. But I've got to learned that Market is always being interfered by the government, regulation and rules that favoring one group over the other. There is no such thing as free Market and no Market if there is no government. So, one would question whether the current Market is fair or should the regulation of Market be changed? Especially if you are 30% that are not favored by the rules setup in that particular market [ if it's true that 70% of Australia own the house and 30% are renting ]
2) Johnathan is right - House is not the same as BHP share. They are both speculative assets ( because of the rule setup in Market), but house is also a commodity. People needs to live in the proper house to raise family. If the house become BHP share, it become shoe-box townhouses and tiny apartments just to make profit for the landlord and Banks.
3) Steve is not just proposing to lending limit - he said three things altogether to tackle the current housing crisis ( well, not a crisis for landlord of course - not yet). I wish you listened to his whole videos and counter his argument. I also hope you invite him on podcast. What Steve is saying IMHO is the private debt/credit - the house price is no longer determined by the rental yield (as you pointed out in the book) - it is how much you can borrow. I am seeing it in real life [when you look out the windows] when my friends want to buy a house, they go and ask the bank how much they can borrow. Even if it's an investment house, they do not check how much rent they can get from that house but bid in the auction with maximum they can borrow. Which, Steve pointed out is the reason why Australia private debt/credit is one of the highest. Steve also said that it was the reason for Great Depression and GFC. That's why Steve is proposing the debt jubilee.
4) Credit/debt is the driving force of the economy but too much credit is the problem. Government should limit how much people can borrow because people should NOT be buying a house with money they DO NOT have. (NINJA loan. etc. ) There should be a limit otherwise when there credit crunch, people will loose everything.
As for Keen, I’m not as polite about him as Cameron is. Keen has a big ego and has been wrong on important issues for years, refusing to see the bigger picture. He criticises other economic schools yet is completely blind to his own shortcomings - such as blatantly refusing to address the question “what drives debt?” Because if he did, he might have to admit he’s been wrong for the last two decades.
What he preaches can sound deceptively convincing until you examine the logic. For example, the idea of limiting how much people can borrow. Just look at what’s happening in London to dismiss that notion as illogical. And there are countless other examples like that. Despite his claims, Keen does not understand debt. Period.
Thanks for the link. Being non-economist myself, I do not follow any particular economic school as long as the theory make sense in the real world. There are a lot of articles from Dr. Murray that make sense to me. The same thing for Steve's.
I’ll listen with great interest to hear the arguments against your “there is no housing crisis” view. ;-)
In the meantime, just a quick comment about Keen. He really should know better. Restricting how much people can borrow is not a recipe for cheaper housing. He lived (or still lives) in London, where prices are even more unaffordable than in any Australian capital city, despite lending being capped at four times annual salary! He seems to live in his own bubble, a bit detached from reality. ;-)
Move the Capital to Alice - free a lot of housing up in Canberra for the commuter belt / WFH crowd in Sydney and Melbourne. Call it the phase 1 of the great retreat for Climate Change if that helps politically.
Feels like this problem needs some big actions to address the structural stagnation. Also needs policy makers to see the urban homeless as a failure of society, not a failure of individuals to be used as an example for us all to keep us in line.
Hi Dr. Murray, I've been meaning to comment on your blog for awhile and now that you are quoting Steve, I thought I would reply a few things.
Firstly, let me just say, I got to know you from your interview with Martin around the time the Housing Hijack book came out and been following you since. [I have bought a bunch of your books and share it with my family/friends.] The reason I like your commentary is because they are simple, make sense and you seem to be reasonable and polite even when you are not agreeing with the podcaster/interviewer.
The reason why I wanted to comment was because, lately, if I can be frank, some of the commentary are less making sense. Maybe it is me. Maybe it's the way I am interpreting your messages. (I am an engineer, not an economist). But I have a hard time agree with some of them. [I can see the same frustration by Jonathan in this podcast with you; this one and the one before I couldn't remember the title]
Anyways, here are things that comes to my mind listening to the podcast
1) Market - you seem to take the view of Neoclassical idea of Market. Leave it alone and it will work itself out. Apology if you are not, but I think, when it comes to housing, you have this view with five equilibria that Market is working as it should be and it is okay(?); hence there is no housing crisis. But I've got to learned that Market is always being interfered by the government, regulation and rules that favoring one group over the other. There is no such thing as free Market and no Market if there is no government. So, one would question whether the current Market is fair or should the regulation of Market be changed? Especially if you are 30% that are not favored by the rules setup in that particular market [ if it's true that 70% of Australia own the house and 30% are renting ]
2) Johnathan is right - House is not the same as BHP share. They are both speculative assets ( because of the rule setup in Market), but house is also a commodity. People needs to live in the proper house to raise family. If the house become BHP share, it become shoe-box townhouses and tiny apartments just to make profit for the landlord and Banks.
3) Steve is not just proposing to lending limit - he said three things altogether to tackle the current housing crisis ( well, not a crisis for landlord of course - not yet). I wish you listened to his whole videos and counter his argument. I also hope you invite him on podcast. What Steve is saying IMHO is the private debt/credit - the house price is no longer determined by the rental yield (as you pointed out in the book) - it is how much you can borrow. I am seeing it in real life [when you look out the windows] when my friends want to buy a house, they go and ask the bank how much they can borrow. Even if it's an investment house, they do not check how much rent they can get from that house but bid in the auction with maximum they can borrow. Which, Steve pointed out is the reason why Australia private debt/credit is one of the highest. Steve also said that it was the reason for Great Depression and GFC. That's why Steve is proposing the debt jubilee.
4) Credit/debt is the driving force of the economy but too much credit is the problem. Government should limit how much people can borrow because people should NOT be buying a house with money they DO NOT have. (NINJA loan. etc. ) There should be a limit otherwise when there credit crunch, people will loose everything.
I think you’ll benefit from reading this post, it gives useful context on what actually drives prices and why what’s happening now is the expected outcome: https://www.fresheconomicthinking.com/p/why-home-prices-obey-economics-and
As for Keen, I’m not as polite about him as Cameron is. Keen has a big ego and has been wrong on important issues for years, refusing to see the bigger picture. He criticises other economic schools yet is completely blind to his own shortcomings - such as blatantly refusing to address the question “what drives debt?” Because if he did, he might have to admit he’s been wrong for the last two decades.
What he preaches can sound deceptively convincing until you examine the logic. For example, the idea of limiting how much people can borrow. Just look at what’s happening in London to dismiss that notion as illogical. And there are countless other examples like that. Despite his claims, Keen does not understand debt. Period.
Thanks for the link. Being non-economist myself, I do not follow any particular economic school as long as the theory make sense in the real world. There are a lot of articles from Dr. Murray that make sense to me. The same thing for Steve's.
I’ll listen with great interest to hear the arguments against your “there is no housing crisis” view. ;-)
In the meantime, just a quick comment about Keen. He really should know better. Restricting how much people can borrow is not a recipe for cheaper housing. He lived (or still lives) in London, where prices are even more unaffordable than in any Australian capital city, despite lending being capped at four times annual salary! He seems to live in his own bubble, a bit detached from reality. ;-)
Move the Capital to Alice - free a lot of housing up in Canberra for the commuter belt / WFH crowd in Sydney and Melbourne. Call it the phase 1 of the great retreat for Climate Change if that helps politically.
Feels like this problem needs some big actions to address the structural stagnation. Also needs policy makers to see the urban homeless as a failure of society, not a failure of individuals to be used as an example for us all to keep us in line.