When markets fail they fail they can fail in ways not conceived by many. As in this example, from today’s The Age:
In a documentary soon to be released, Real Estate 4 Ransom, the group (Earthsharing) says that 4.95 per cent of the city’s potential housing stock is unoccupied, double the rental vacancy rate of 2.4 per cent published last week by the Real Estate Institute of Victoria.
…Earthsharing used water-meter data … Dwellings using less than 50 litres a day for six consecutive months were deemed vacant. … The group’s Speculative Vacancy Report says that in Docklands, almost a quarter of residential properties there, 23.32 per cent, are vacant. The official vacancy rate for Docklands is 3.62 per cent.
The meaning is that owners of property are not accepting the markets choice to lower prices. Many would expect property owners to accept lower rents.
Why prices don’t fall.
Supply is being withheld to prop-up rental demand across a portfolio (s) of properties for many owners. This is collusion. (something actually predicted by Adam Smith, and why we need laws to prevent collusion in markets).
Victoria is a casebook example of artificially high property prices caused by collusion.
My own enquiries along these lines for city benchmarking data, indicate that the entire metrics of property in Victoria are broken (they do not accurately report prices).
So there is not accurate information in the price.This is hype data.
This hype data happened previously in some sections of the USA, Ireland and other property markets that have experienced crashes. As I tweeted recently, and in the past, Victoria needs independent property metrics: https://twitter.com/#!/christopherhire.
Why does this matter?
High property prices reduce most types of innovation. They do this because innovation and new business is not supported, as money flows into speculative renovation. If this was constructing long-term buildings and infrastructure, then that is more productive. Business-owners use buildings and infrastructure. Citizens need homes.
The broader value-destroying issue of high property prices is this — investment in valuable Human Infrastructure is not there in Australia.
Australia needs to invest for future.
Whilst Asia is buying fast rail, Dubai is building new islands, Australia is installing new sinks, sparkling baths and great benches with waterproof cushions. Not all property is good property in building stock terms.
In the quest for an innovation economy, in Australia, there is under-investment in much useful Human Infrastructure (2thinknow termed this for soft and hard infrastructure).
This lack of Human Infrastructure is magnifying a Dutch Disease (i.e. short: high resource prices crowding out industries).
Be that Public or Private investment, for Australia more infrastructure and useful allocation of monies is needed.
Keep innovating,
Christopher Hire
Christopher Hire is Executive Director of 2thinknow. He oversees 2thinknow’s programs, and provides professional advice as part of his work.