Charles Eisenstein has a new book Sacred Economics and this short film discusses core concepts such as the monetary system, the commons and the land issue. Colleagues are raving about the book. Charles will soon be on the Renegade Economists radio show.

This article was written for the Sustainable Living Festival and can be downloaded

The global economy crashed under the weight of excessive debt – debt caused by the giant ponzi scheme known as the real estate game. Drilling down, we see that it is high land prices that caused the debt drain.

Greece had a property bubble of some 220% over a decade. Spain 201% and Ireland a staggering 400%. Australia’s mortgage debt/ GDP was 18% higher than America’s at its peak.

Dare we ask – who are rising property prices good for? This game of life is becoming incredibly risky on economic, environmental and social grounds.

Within this game are incentives to buy and sell prime pieces of land for purely profiteering reasons. In a typical market, higher investment leads to more of a certain product being produced. But the fact that the earth, the land is fixed in size, escapes policy maker (Flat Earth economics!)

The results is higher land prices. The IMF’s Asset bubbles and the cost of economic fluctuations (2009) is one of many papers by major institutions identifying why asset bubbles are damaging.

From the home of democracy to the death of economic sovereignty, Greek officials are struggling to keep their government afloat. Much of this has to do with the central premise of the film. We are taxing the wrong things and this is causing more problems than it solves.

Warren Buffett famously complained that he pays a lower effective tax rate than his secretary because of his ability to stream his earnings towards capital gains (taxed at 15% in the USA) rather than the top 35% income tax bracket.

Here in Australia, we are taxed at the highest rate if we work a second job, but subsidised if we invest in a second property (via negative gearing). Even though economists have long understood the dangers of speculating in real estate, more and more of the tax game is sliding toward the investment in scarce resources – where monopoly powers can be enforced.

Not satisfied with negative gearing or the 50% discount on capital gains tax, lobbyists have worked hard over successive administrations to allow Self Managed Super Funds to invest in real estate – paying a zero capital gains tax.

Whilst Project Wickenby has had some modest success in scaling back the use of tax havens, the use of tax minimisation as a strategy is still commonplace amongst those lucky enough to afford an accountant who can keep up with the mileau of tax loopholes opened and closed each year.

If economic justice is to be achieved, we need to occupy the tax code to re-direct our economic activities back towards entrepreneurial practices rather than risky speculative bursts.

The trillions in bailout money has been siphoned away from investing in genuine employment creating industries and into speculating in scarce commodities. We have seen record prices in barely, wheat, and corn. The result? Riots in Africa and the Middle East, leading to the Arab Spring.

Thankfully more and more are realising that without economic rights, civil rights mean little. The appointment of Washington consensus cronies in Greece, Egypt & Spain give little hope for the future. We need economists in power who understand the forces of monopoly.

Adam Smith and the Classical economists wrote on the importance of balancing the natural advantages in owning prime land with those who were running a bakery in a sprawling suburb. Land values were the marker of advantage. Those living in Toorak should pay more than Warragul.

The difference between city and rural is even more extreme. We all pay the same income and GST tax rates. However, the capital gains in a city suburb like Toorak can in just a few years of a boom be enough to cancel out a lifetime of taxes paid. However, we are taught to look the other way.

It is far sexier to blame the banks. Seventy percent of bank assets are mortgages. The land component for a typical mortgage accounts for some 70%. For older houses like my 1960′s home in Braybrook, land values are 93% of the total value according to council valuations.

The key issue is that land is a scarce commodity. Our tax system encourages speculators to invest in the pursuit of lowly taxed capital gains. The growth in land prices has been extraordinary, with land prices increasing 126% (1995 – 2010, inflation adjusted). Such capital gains have been greater than possible rents earned. In 2009 for example, the average rent was $17,000, but the capital growth was over $30,000 in Melbourne. For many of the 1% who have landholdings in the 100′s if not 1000′s of properties, it actually works to their advantage to keep some of their holdings vacant – in effect holding Real Estate 4 Ransom.

Such speculative vacancies enforce scarcity, pushing prices up. These vacancies aren’t recorded in the widely quoted REIV vacancy numbers. Their figure looks at total rental properties on the market to rent as a percentage of all rental properties on REIV member’s books. This does not include speculative land banks or apartments bought off the plan and held for speculative profit.

We are told there is nowhere to live but there is plenty of room to speculate.

Earthsharing Australia has been surveying the wider property market via our innovative utilities based measure, looking at water consumption of under 50L per day over six consecutive months as a proxy for vacant property. In surveying just 64% of Melbourne’s residential property, we found 46,220 speculative vacancies in 2010.

Such spin existed around the world in the buildup of the global land bubble, where the property lobby used their well funded machinations in places like Ireland to entrench the belief that there was nowhere to live. Builders built to satisfy the ponzi game, not the reality of housing for humans.

With climate change to threaten arable land, enhance the values of elevated locations and penalise those living in the sprawl, we need to mandate housing as a secure and equitable outcome for all, not a short term gaming of the system.

See the film realestate4ransom.com

Earthsharing will have a stall along the Yarra riverbank at this weekend’s huge SLF event from Fri 12 – 8pm, Sat – Sun 9 – 5pm.

Drop in to buy a copy of Real Estate 4 Ransom, have a chat about the state of our speculative housing market or find out about our latest campaign.

I will be broadcasting the Renegade Economists radio show 10.30 – 10.50am Saturday live on 3CR, on stage at the Green Room tent (the big marquee at the eastern end of the festival). The special guest is the ACF’s Simon O’Connor.

Come and join the atmosphere at this positive, solutions based gathering.

Associated with the SLF is the Transitions Film Festival, where I will also be appearing at the Transitions Film Maker’s Forum panel this Thursday eventing from 7pm at the State Library.

photo credit: euthman

Renegade Economists Podcast 213

Subscribe to the 3CR podcast here or listen Wednesdays 530 – 6pm.

Author Christopher Ketcham hits the forces of Monopoly Capitalism with an overview of how the market system became a host for greed.

www.realestate4ransom.com

Host Karl Fitzgerald: out of the 25 largest cities in America, New York is the most unequal for income distribution. If it were a nation it would come in at the 15th worst amongst 134 countries ranked by extremes of wealth and poverty – a banana republic without the death squads – so writes today’s special guest Christopher Ketcham. He’s a regular writer in Orion magazine.

Yes, today’s special guest is Christopher Ketcham – the next up and comer behind Matt Taibbi in terms of investigative journalism within the world of monopoly capitalism we are enduring. He writes for Vanity Fair, Harpers and GQ and is currently writing a book about secession movements in the north east of the (United) States. He really rose to prominence with an article called The Reign of the 1%’ers that buzzed around the internet in the lead up to Occupy Wall Street and thereafter and he’s also got another couple of killers called “The New Dog in Town” and the “Curse of Bigness”. I encourage you to find them on the Orion website.

I started off by asking Christopher about the writing process and what is the most rewarding facet of it?

C.K: I tend to prefer hate mail because then you know you’ve actually woken people up and sparked a nerve and done some sort of trouble making out there. I mean this article for Orion – the Reign of the One Percenters was written almost entirely for my daughter who’s 16 and for whom, I think the, future is quite bleak given the current situation – given the control that the 1%, the very rich, the oligarchy has over her fate, and my fate and the fate of the political economy. So the satisfaction I had in that article was really just writing a down and dirty polemic against the oligarchy.

And the article opens with her – she and I are taking this tour through the Wall Street area back in the summer of 2010 and I just decided “alright Leah (her name is Leah) – Leah lets take a tour and look at the various institutions of socio-pathology that really run this city”. So we walked by the AIG building, the Goldman Sachs building, or at least its ancillary headquarters in the Wall St area because you know a lot of these big corporations, these big investor banking firms have moved out. There not based entirely in Wall Street. They’re up in the Avenue of the Americas, they’re in New Jersey but there is still enough concentration down there. For example Bank of New York Mellon at 1 Wall St., Duetsche Bank at 60 Wall St., so we took the big tour and, walked by the NYSE, walked by the Federal Reserve where the criminality starts. I was trying to give her a sense as a 15 year old, I was trying to give her a sense of who really runs New York and who is behind the money power that really runs things in this country and, you know, generally, world wide.

K.F: and did she have a filter that she could empathise with what you were discussing. Did she study economics or history or any of those frontiers at school?

C.K: not really – the best part was that we started coming up with all sorts of really venomous invective for the various characters we were seeing. We were just engaged in open satire of the Wall Streeter’s who we were observing, the almost charactertures of wealth and privilege. So it was more a matter of satire and fun than of deep learning – if you will. But she has in her school studied the French revolution, the Russian revolution and the American revolution and understood that where there’s too much wealth concentrated in too few hands that you will have the people rising up and guillotining the very rich.

K.F: its amazing though that during a time when everyone’s after the elusive dollar it seems that very few are studying it (economics) as part of the syllabus at high school and I just wonder whether maybe out of this growing association with inequality there will be a pushback at high school for more kids to study some form of economics that is based on reality.

C.K: well the whole field of economics, what’s called neo-classical economics today is based on un-reality. It is based on the idea that there is no free lunch in any economic system. That for example the financier, the hedge funder, the usurious banker all contribute to society in some fashion, some productive fashion, whereas classical economists – old school progressive economists – throughout late 18th century and throughout the 19th century understood that there were all kinds of free lunch to be had in capitalism and the point of a progressive society was to enact laws that prevented those people from parasitically benefiting from society or from the capitalist system.

So what we have today is we have an economics curriculum in the high schools and in universities – more in universities than in high schools – that basically teaches that parasitism is A ok – parasitism is the way to go. And that’s why you have all those business schools, the major business schools in the United States, producing all these kids who want to go straight to Wall Street to make a billion bucks doing nothing. Basically,you know, pressing a couple of buttons and enjoying incredible profits while actually adding no productivity to society or producing no real goods or services.

K.F: And in Christopher Ketcham’s landmark article – the Reign of the One Percenters he writes “the 1%’er in his Wall Street tower creates value by tapping on keyboards and punching in algorithms. He makes money playing with money – manipulating abstractions. He manufactures and chases after financial bubbles and then pricks them. He speculates on mortgages, car loans, credit card debt, the price of gas that keeps the real economy moving, the price of food that keeps the labor pool alive, always hedging his bets so that he comes out ahead whether society wins or loses.” And that was a killer line for me – I said, right, I’ve got to get this man on the show. So let’s go back to the interview with Christopher Ketcham.

C.K: so if we were to adjust, to transform the way economics was taught I think it would go a long way towards changing the viewpoint of the younger generations in terms of how they see Wall Street, how they see big capital, big corporations, etcetera, etcetera.

K.F: and so much of this modern era is talking as if we have reached new levels of economic discovery and what you’re really telling us there is that 100 years ago our forefathers knew a lot more and were keeping an eye on what you have termed as the Gilded Age. Could you perhaps take us a step back in time to that era and what was learnt in the 1800s?

C.K: well what happened after the civil war in the United States is that there had been enormous increases in government spending and enormous expansion of the industrial plant – infrastructure was expanded – and at the same time you had the failure of the regulatory apparatus to keep up with technological increases or technological innovations and innovations in finance and banking. So the industrial infrastructure and the transportation infrastructure of the United States was captured by monopoly corporations.

Corporations themselves were under the law given all the rights and privileges of the citizen, under the fiction of corporate personhood, and so you had this monopoly power of big money over the political economy of the United States which accrued more and more wealth into the hands of the few who were then able to determine economic policy from top to bottom in the United States. Corporations were acting as states, as governments, as private governments that were liberated from public government. So the Gilded Age was really about the hijacking of the country by private corporations and by the very wealthy.

So what happened in response? The progressive era rises up. You have the populist movement in response. You have the campaign for the mayoralty of New York by Henry George in 1886 who was one of the earliest of the progressive voices. You have the Populist party of 1892 and 1896 vying for the presidency as a 3rd party. You have all of these populist, progressive movements rising up saying “no – we have to reign in the power of the monopolist, reign in the power of the corporation, reign in the power of the very few – the oligarchy – and free the market place so that it will be a level playing field. So that we can all compete freely” and they called this radical republicanism; they called it democratic capitalism.

This lead to some amelioration of the problems of corporatism – the graduated income tax for example. The corporate regulatory apparatus was put in place with the interstate commerce commission, and with various anti-trust acts – the Sherman anti-trust act, the Clayton anti-trust act, etc, etc, and this was all through the period let’s say, 1890 – 1914/1920.

You have huge, aggressive, disruptive labor movements rising up with the Industrial Workers of the World, with the Congress of Industrial Organizations in the 1920s and the 1930s that seek to basically say “alright big, corporate America we’re going to disrupt your operations until you play fair”. And so these disruptions lead to the reforms of the New Deal – you have social security put in place, you have all sorts of systems put in place to protect the citizen against the depredations of corporations.

And then what happens? Well you have a period between 1945 and roughly 1975 where the country is the most equal its ever been. The incomes equal out, more or less, the very rich are heavily taxed. There is still a growing and continuing trend during that period towards increasing size in corporations, towards corporatism – the marriage of big government and big corporate power – but there are regulations in place that prevent corporations from going whole hog and just becoming savagely predatory in the market place.

All that ends with the election of Ronald Reagan in 1980 when you have the beginning of a long period of deregulation which basically means that the government steps into the marketplace and regulates the marketplace to benefit corporations against the interests of the citizenry. And this is a period, and rather this is a trend that continues irrespective of Republican or Democratic administrations. It begins with Ronald Reagan but it really accelerates under Bill Clinton – the great traitor to the Democratic Party, well to the old school, democratic, populist, roots – the populist, labor roots of the Democratic Party.

Bill Clinton was the corporate whore par excellence in the Democratic Party. Under Bill Clinton there were more mergers than ever in the history of the country. That is you had larger and larger corporations establishing larger and larger monopoly control over markets and the political economy. You had skyrocketing income inequality that begins under Bill Clinton and then of course the trend continues apace under George Bush, George W. Bush and now under Barrack Obama. So we are now in a new Gilded Age in a sense that we have returned, we have regressed to the point we have lost a 100 years of political, economic, progressive thought in action. That is we have dismantled all of those various apparatuses that had been put in place by the progressive movement to reign in the power of private, corporate governments.

K.F: and so what are some of the frontiers of monopoly you are seeing develop now? Where are the so called entrepreneurs pushing this control of independence, that’s essentially what’s been locked up is our ability to look after ourselves and our community on each and every front and we’re told that this monopolistic power is a good thing. Are there any new developments that are things people should be looking out for? We’ve seen our DNA’s start to be privatized – we’ve got all sorts of issues going on with electro magnetic spectrum, and pharmaceutical buy-ups of indigenous plants around the world are going full steam ahead. I just wonder over there in America, are there any new whisperings about that we should be looking out for?

C.K: Google. Google is one of the most dangerous monopolists out there because Google is increasingly securing its place as the gatekeeper and possibly the toll keeper for the internet. I mean when people go on the internet where do they go? They go to Google.

Google becomes an informational gateway and just take the monopoly that I think is developing in email … in email systems like Gmail for example. At OWS I’ll go around, I’ll be interviewing people and I’ll ask “so what’s your email?” and I’d say that 75-85% of all the people – these activists, these protestors – radical dissidents who are operating at OWS and participating in the marches etc, etc – they’re all on Gmail. Well, Gmail, it’s known that you have no privacy on Gmail and Google can read your email, can read the contents of your email at anytime.

The emails that you write and receive through Gmail are all in the end the property of Google. They sit in the Cloud in some remote computing location and you don’t actually download them to a computer where you can hold on to them and consider them yours, consider them your private data. So that’s an interesting monopoly that’s developing.

Amazon is also a huge monopolistic power on the internet which is exercising nefarious power over the marketplace and then all the various elements that you mentioned earlier whether it be GMO’s, whether it be crops, whether it be seeds, the patenting of genes, you name it, corporatism has run amuck.

Corporatism is a wild, rabid, predatory creature that is savaging the planet with its bloody jaws and something has to be done.

K.F: do you think following this extended recession/ depressionary period – will property bubbles be seen as a dangerous thing or are they just going to run onto the next bubble as can be imagined with these poor economic policies. Are they trying to enforce this lost decade? Is this what you’re seeing? Because from down here in Australia we’re still doing okay in our economy but were seeing all of these bail-outs as policies extending the recessionary forces and to think that austerity is the way forward I just don’t know how much pain they’re trying to inflict on the 99%.

C.K: well the way forward is to destroy the banks. The way forward is a debt jubilee. The way forward is to end the control of private institutions over money supply. The way forward is to create public banking systems to control our currency through the public – not through debt backed money. And barring that, barring a truly revolutionary transformation of our monetary system, we will continue to have bubbles because that is all we produce now in the west. We produce bubbles and that is how our economy survives. It survives entirely on leveraged investments … that then drive up asset prices… and so then you have more people leveraging themselves in order to buy more assets. So this is what you saw in the internet bubble of the late 1990s, that’s what you saw in the bubble that followed – the housing bubble of 2001-2008, so we will be seeking as many bubbles as possible.

You don’t know how many people I’ve talked to that say housing prices have to go back up – …. they have to go back up as “it’s the only way I’ll survive, all my money is tied up in property – all my money is tied up in the idea.” And these are people are good old Americans – middle class Americans – who invested in housing and considered it to be their means of retirement.

They say “I need this house to go up in value in order for me to survive”. Well for it to go up in value to the extent that they want, to the extent that they need to survive, they need another bubble, they need another housing bubble. So everyone’s implicated. Everyone’s tied up in this monstrous system. And the only way to end the monstrous system is for a calamitous transformation of that system and that would be very bad. That would be chaotic. And yet sometime you’ve got to have some chaos in society. Sometime you’ve got to have upheaval. We need upheaval. We need a revolution. We need this monstrous system to be destroyed in order to move forward.

K.F: so I dare say you’ve got some veggies growing in your back garden?

C.K: nah man. I mean I’ve got a couple of guns. I’ve got a bunch of guns. You have veggies growing in the garden? I’ve got a couple of veggies. I’ve got garlic – some garlic to keep away the vampires.

K.F: well it’s a massive, massive decade or so we’ve got coming up because were just really dealing with peak debt here and peak oil, peak demographics, climate refugees – its all coming our way. Do you think that just reforming the public banking system is enough though? We’re talking huge systemic change here.

C.K: its just one element …. that would have to happen. Because, look, in a system where money is backed by debt, that means you have to have constant growth in order to pay off the interest accrued on that debt. So you borrow 10 bucks. The 10 bucks is brought into the money supply at an interest rate of 2 or 3% or whatever. So the actual money that must be paid back compounds. And you have to continue to grow and grow and grow. That is you have to have this constant growth economy. A constant growth economy implies constant use of resources – increasingly scarce resources.

What we have today is an economy that is both delusional and suicidal. Delusional in the expectations that it can grow forever and suicidal in that we know it can’t grow forever and yet we continually say we need to grow – we want to grow. So you’re also talking about a societal transformation. A transformation which people are no longer engaged in the consumerist hallucination: no longer sickened with affluenza – with this desire for unabated and unhinged affluence. You know, the continual amassing of possessions that you really don’t need.

Then you’re also talking about a transformation of massive brainwashing and propaganda systems inherent in Madison Avenue in the promotion and publicity relation complexes which are all dedicated to deceitfully… basically lying to people in tricking them in to buying things they don’t need – selling sugar water to children. These are sick, demented, degraded, degenerate industries – I don’t see them going away anytime soon. So again were talking about transformations …that maybe are so quixotic, so idealistic to consider that they will never happen.

One of the guys that I got to know at OWS over weeks and weeks of just going there every night and just hanging there and talking to people was a guy called Jeff Smith – formerly in advertising – totally a clean cut dude. Here’s a guy who spent 15 years, as he put it, “selling sugar water to children” and repenting of it and finding now that he had worked for as he put it – quote – the most evil industries. So now he’s down at OWS fomenting disruption and marches and helping to organize the media working groups – so called – that engage in outreach with people like me. So you have the entire spectrum down at OWS in Zucotti Park in Lower Manhattan.

K.F: were talking to Christopher Ketcham, author of Reign of the One Percenters, and Christopher, in closing, can you tell us in about the next level of development for the OWS movement. What has been happening down there? We’re seeing that there’s plenty of goodwill still continuing – meetings going on in various public buildings around the city. But what are you feeling is going to happen once this winter is over in the north?

C.K: well, you know, November 15 rolled around and the park was raided and many people were assaulted and pepper sprayed. It was a bloody scene. It was violent and there was some talk that that was the end of it. That OWS with the scattering of the encampment at Zuccoti Park that that would also be the scattering of the movement. But in fact it rebounded astonishingly. Two days later, on November 17, OWS organized with a labor coalition the largest march it has ever organized to date – 32,000 people marched through lower Manhattan and across the Brooklyn Bridge.

Forty labor representatives in protest of the violent crackdowns of police in New York and elsewhere across the United States were arrested. Now that hasn’t happened since the 1930s. Labor has not come out in a cross-trade coalition to support each other – to support a political movement. That is to support radical political change. So you got a labor coalition coming together with OWS.

OWS now has an office and its got a central core of organizers. Its got lots of support. They’ve got lots of money. They have got their encampments that are still surviving and fighting off the police all over this country whether it be in LA or in Oakland where there’s been a lot of violence.

So you know the movement is not over. And in a sense the destruction of Zuccoti Park, which had become the symbolic centre of the movement, handed to OWS the moral high ground. And, so in a sense, it was a tactical error of huge proportions on behalf of the Bloomberg administration. So I see the movement growing. I see it building coalitions. I see it turning into I’m not sure what, but it will have some sort of effect on the 2012 elections.

K.F: and what would you say to Australian listeners in respect of the northern hemisphere at the moment?

C.K: I would say that the enemy is in NYC and the enemy is the 1% and they’ve got to be taken down – peacefully. That’s what I would say. And the 1% is everywhere.

The 1% is a global elite that want to steal, and plunder, and privatize and sequester the wealth and resources of this planet unto themselves and I think we have to band together, worldwide, and stop it. Stop it so that the world, the planetary commons can be shared among all and so that we can have some sort of dignified survival in the future, you know, as a race – as a human race: as homo sapiens. That’s my message.

Adam Schwab wrote up our fourth report on speculative vacancies in Crikey yesterday.

Shortage or glut? Feast or famine? The question of whether Australia is suffering a housing shortage continues to be hotly disputed, with the real estate and construction lobbies arguing a desperate shortage exists, while other independent bodies, such as Prosper Australia, disputing the notion of a shortage.

The housing glut argument is led by Earthsharing Australia, which last year produced a report suggesting that the vacancy rate in Melbourne (until recently, one of Australia’s hottest property markets) was about 5%. In fashionable suburbs, such as East Melbourne or the Docklands, vacancy rates exceeded 8%. Earthsharing’s report, which was based on water statistics provided by City West Water and Yarra Valley Water, suggested that more than 60,000 properties lay vacant in Melbourne — substantially more than the reported vacancy report suggested by the real estate lobby.

While not a perfect measure, there is a degree of commonsense to Earthsharing’s report. Rather than attempt to guess whether there is a housing shortage based on economic assumptions, the group simply checked whether to see water was being used in a property — it is not unreasonable to suggest that if no water is being used for a length of time, the property is unoccupied.

That view was contrasted by a report released by the National Housing Supply Council, which echoed the sentiments of construction groups and claimed Australia was in the midst of a housing shortage. In fact, according to the council, the shortage actually increased by 28,200 to 186,800 during 2011. Even worse, the alleged shortage is forecast to widen to 640,000 within 20 years.

The National Supply Council is a strange beast — formed by the federal government in 2008, the organisation is a strange mix of academia, property developers and the even respected Saul Eslake. Included in the council are Mark Hunter (CEO of Stockland Residential), Nigel Satterley (property developer and BRW Rich List member), Ruth Spielman (executive officer, National Growth Areas Alliance) and Simon Norris (Clarendon Homes Queensland).

The council’s rationale for deeming a housing shortage is worth considering further. That is because rather than look at actual demand for housing, the council uses “underlying” demand. This leads to strange results.

Last year, the population of Australia increased by 320,000 — this was through a combination of immigration and births (less deaths). This figure is sourced from the ABS, so we can assume it is about a correct a figure as we can locate. According to the council’s report, there were 131,000 dwellings added last year (this figure is lower than what other sources claim, but we’ll accept it).

The council’s own report noted that there are 8.7 million households in Australia — with a population of 22.4 million, that means there are 2.6 people per household. Using fairly simple arithmetic, that means with 2.6 people per dwelling, and 131,000 new dwellings, enough housing was built last year for 340,000 people.

But wait, the population only increased by 320,000 people — that means, despite the council’s claims, there is a surplus of housing being built (even with dwelling construction being less than forecast). This appears to contradict the council’s finding that the shortage increased in 2011.

The council claimed that “on the demand side, at any given point in time underlying demand may not feed through directly into effective (actual) demand” — basically, what that appears to mean is that while there isn’t really a shortage, it will make some assumptions that allow a shortage to appear.

Later, the council noted that “the level of underlying demand is driven mostly by migration and other demographic factors”. Essentially, it appears the council is claiming that demand may increase in coming years (even though immigration levels are falling, rather than increasing), and that is why a shortage exists. The fact that a surplus of housing was built last year is disregarded.

More mysteriously, the Supply Council also claimed that “there were about 8.7 million households in Australia in June 2010. The number of households is projected to be 12 million by 2030, representing a net increase of nearly 3.3 million households between 2010 and 2030″.

This alarming forecast again doesn’t appear matched by recent facts.

Based on household numbers, the council is predicting an Australian population of 31.2 million in 19 years. That’s an increase of 9 million from the current level. The problem? That would require Australia’s population to increase by 473,000 per year — 42% more than the population increased in 2011. In fact, that’s a higher population growth rate than Australia has ever recorded. The claim is more difficult to justify given that Australia’s population growth and migration is slowing after spiking in 2008 and 2009 (see table below).

House prices haven’t increased because of increased demand from migrants outstripping dwelling construction — rather, prices have risen because bank lending has created false demand. Supply factors have played little, if any role in the recent house price growth. As soon as bank lending is restricted (and this is happening already), it is likely the illusion of a supply shortage will disappear. Just like what happened in Japan in the 1990s, or California and Ireland after the recent financial crises.