Tuesday 30 August 2011

On the Internet, nobody knows you're a dog, or a paid property spruiker.

Who are you really chatting with, when you post on that property forum or blog? A regular person like yourself, or a paid spruiker, funded by the real estate industry?

That's the question that arose this week, when it was revealed on several major Australian property forums that groups of 'shills' or 'spruikers' may be bankrolled by big business and property groups to paint a false rosy picture of the local real estate market.

You see, dear reader, the property market is in severe difficulty. Stock on the market has gone through the roof while auction clearance rates have fallen through the floor. House prices are falling, rental vacancy rates are rising, incomes are falling (contrary to popular opinion), and Channel Nine's disastrous 'The Block' finale (watched by 3 million viewers) was the final nail in the coffin. The media is awash with articles about the oversupply of property, the dreadful consumer sentiment, and the imminent collapse of the great Australian housing bubble.

What is the property industry to do in the face of this new reality? Why, what else, but attempt to spin their own reality. Demographer Bernard Salt was recorded recently at the Congress 2011 event, conspiring with big business and the real estate propaganda machine to create groups who would plant positive spin messages on the opinion pages of major newspapers, discussion forums, blogs, twitter other social media platforms. Mr Salt advocates that these groups should seek out and counter 'extreme' views. His property industry colleagues at the Congress 2011 event recommended broad PR campaigns aimed at fighting 'negative' sentiment in the real estate market. Watch the video below.

Have they been successful in achieving their goal? Is there more to the bullish comments on blogs, forums and news articles than meets the eye. I believe there is.

It shouldn't surprise anyone to be told that the real estate industry might wish to sow fear, uncertainty and doubt among the general public. We've been hearing their fearful spruik for decades.
'Buy now or miss out forever! House prices always go up! Don't miss the boat! Rent money is dead money! Get on the property ladder! Now is a great time to buy! Double your money in 7 years!
Did you happen to notice recently, how in the comments section of any major property news article, among the majority of balanced and realistic posts, there's always one or two jokers insisting everything is fine and house prices are just about to skyrocket through the roof and into the stratosphere once again. How likely is it that real people could be so stupid, to expect another boom at the peak of the largest real estate bubble this planet has ever known?

Not very likely, is it? More than likely, these people are vested interest spruikers, paid to talk up the market. At least, that's the conclusion on popular real estate discussion forums TalkFinance, and Australian Property Forum.
TalkFinance: Has KPMG Set Up Paid Gangs of Cyber Spruikers?
Australian Property Forum: Property industry groups to counter negative sentiment on websites?
In fact, a few smart investigators from the Australian Property Forum unearthed evidence that several high profile 'property bulls' are in fact 'sockpuppets' controlled by a single identity. It seems that after years of posting, and thousands of posts, the puppetmaster behind these characters slipped up on one occasion while posting on the Credit Crunch Forum.
Credit Crunch: Two 'bulls' post as one.
It begs the question, how many of the prominent property bulls and investors posting on news articles, blogs and forums, are in fact invented characters, controlled by these property industry spruiking gangs? When pushed for the truth, the shill posting on the Credit Crunch forum was eventually forced to admit his use of specialised software for the creation of multiple 'sockpuppets'. This ties in quite nicely with a recent article I read on astroturfing.
George Monbiot: Robot Wars

Online astroturfing is more advanced and more automated than we’d imagined. Every month more evidence piles up, suggesting that online comment threads and forums are being hijacked by people who aren’t what they seem to be. The anonymity of the web gives companies and governments golden opportunities to run astroturf operations: fake grassroots campaigns, which create the impression that large numbers of people are demanding or opposing particular policies. This deception is most likely to occur where the interests of companies or governments come into conflict with the interests of the public.
The article is very enlightening. It seems there definitely exists specialised 'persona management software' that can be used to create all the online facilities a real person would possess: names, email accounts, web pages and social media. It generates what appear to be authentic profiles, making it impossible to discern between these virtual identities and real people. Is it so hard to believe that the property industry is using such software, creating scores of fake personas, complete with technically, culturally and geographically consistent backgrounds, history and supporting details, and randomly selecting IP addresses to hide their tracks? This behaviour does indeed make a mockery of online democracy. Could it be that blogs, forums, and the comments sections of major news articles are disrupted and manipulated by armies of organised 'trolls' and 'sockpuppets' controlled by well funded vested interest groups? And if they are, then what should we do to fight these underhand tactics? One option is to fight fire with fire, as suggested recently on the Bubblepedia forum.
Bubblepedia: Antispruiking
Guys, the bears are starting to win the war on hearts & minds, but every day I see more bullish posts popping-up on forums all over the place. Our enemy is determined to keep the public fooled at any cost. I've got some notes here on tactics for posting on open forums, so check them out and add your own ideas. News and Fairfax are the biggest battlegrounds, with the likes of MVF and DB being very prolific (to compensate for the fact that their arguments are baloney). Please everyone get out there and keep the truth flowing so that these used car salesmen can't snare more innocents. Shepherd the sheeple to green pasture.
The Bubblepedia discussion thread sets out some excellent ideas, everything from posting subtle implications about the reality of the unhealthy property market, to questioning bullish articles, to posting personal anecdotes, and even to impersonating and ridiculing normally bullish commentators. But is this the right way to address the issues? Should we really stoop to the depraved levels exhibited by the real estate propaganda machine? Is there a better way?

Readers, I'd like to hear your views, but before I go, I'll leave you with one more example of the dishonesty displayed by the Australian property industry. I call this 'The Eternal FHB'. One couple, who are now featuring in their third (at least) mainstream media 'First' HomeBuyer informercial.
Bubblepedia: News Ltd. Recycling First Home Buyers
APF: Real Estate Industry Spruik of the Day. Nishant & Anu Singla: The constant first home buyers

Does this couple even exist? I doubt it. Even if they exist, can they really still claim to be FHBs a year after buying? In the bizarre world of the real estate propaganda machine, anything's possible!

Over to you, readers.

Wednesday 24 August 2011

Real Estate in Crisis - The Block Auction Results 2011

Channel Nine's flagship property spruiking show 'The Block' ended in spectacular fashion this week. For those of you living on another planet, The Block is a 'reality' television show run every few years by Channel 9. Four contestants pit their wits, interior design skills, and bickering prowess against each other for several weeks, transforming unwanted half-derelict dogboxes into 'desirable' homes, then selling them for a tidy profit. Or at least, that's the idea. Let's find out what really happened this year.

It all began in June, when Watercress Productions, the production company behind the series, paid $3.6 million plus $198,000 stamp duty for the four terraces. That's $950,000 each. At the time of purchase, JPP Buyers Advocates' Catherine Cashmore said Watercress would be "very, very lucky to break even" on the deal. How right she was, as we'll find out.

Before the four contestants could even begin their renovations, the four houses had to be re-stumped, re-wired, re-plumbed, and re-roofed, at an estimated cost of $300,000 each. This brings the total cost per house up to $1,250,000 before the show even started.

Then each contestant couple was given a further $100,000 to spend on renovations and there followed eight weeks of drilling, sanding, painting, sawing and banging, with up to 60 tradesmen on site at any time, plus the eight contestants. Even if we ignore their cost in time and labour for those eight weeks, and just add the $100,000 in renovation money given to the contestants, we now have four houses costing $1,350,000 each.
" -- a second storey has been added to three of the houses, all four were restumped, rewired, replumbed and re-roofed, and each has had $100,000 spent on it by the contestants. Claiming the house he was auctioning had had $400,000 of renovation work done, one agent --"
Great, says Channel Nine, we're done. Let's sell these babies! Now, remember the aim is to make a profit. What sort of profit would you expect when selling a house that cost you $1.35 million plus the labour of scores of handymen (plus two months spent renovating, away from your own friends and family)? Does $100,000 profit sound reasonable?

What would you say if I told you the house sold for almost half a million dollars LESS than you paid for it?

That's right folks, despite the best real estate advertising campaign in Australian history, only one home managed to sell on auction night, for $855,000 (a $495,000 loss). Imagine the collective gasp as three million Australian viewers watched the property bubble collapsing before their eyes. Can you picture them clearly, sitting at home, shifting uncomfortably in their seats as they regard the horror on the contestants faces, and the beady little eyes of the auctioneer darting nervously around the uninterested crowd -- 'but I thought house prices always went up dear?'.

Oh no they don't! After the auction, the next house sold for $860,000 (a $490,000 loss), giving us an auction clearance rate of 25% or 50% if we're generous and count the property sold after auction.

The following day the Australian press was saturated with articles about the dismal housing market, the bursting of the bubble, the collapse in sentiment, the fact that property doesn't always go up. Of course, the real estate industry came out fighting with excuses as to why these results weren't representative, in a vain attempt to convince the public that the market was actually quite healthy. Too late, the damage was done. Three million viewers, and probably many millions more the following day, now knew the truth about the Australian property market.

Naturally Channel Nine would have profited through advertising and sponsorship during The Block series, but the dismal auction results and sale price reveal a property market in crisis. Unknowingly Channel Nine may have pulled the trigger on the bursting of the bubbliest city in the bubbliest housing market in the world. Melbourne's property market was in a poor state prior to the disastrous Block finale, with low auction clearance rates, falling prices, and a large overhang of stock (plus much more in the construction pipeline), but there's little doubt the negative publicity provided by The Block will have cemented a truly alarming picture in the minds of most Melbourne homeowners and property investors.

The mainstream media's reporting on the housing market in days after The Block finale was anything but positive.

But then the plot thickened, because amazingly a few days later the other two properties sold. Hooray! The market is saved, demand is high, faith is restored. It's sunshine and lollipops proclaimed the spruiking propaganda machine.

But wait. Number 37 Cameron Street had originally been passed in at auction well under its reserve at $901,000, and number 43 Cameron Street was passed in well under its reserve at $832,000. Oddly enough, when these properties sold several days later, they sold well above reserve, for $1,000,000 and $922,000 respectively. Far be it from me to suggest there is any dishonesty in the real estate industry, but who in their right mind would pay $70,000-$100,000 above reserve for a property that failed to sell at auction several days earlier. I wonder who bought these two properties?

A more suspicious man than myself might suggest the real estate industry and/or Channel Nine were feeling rather nervous following the lackluster auction results and lack of interest in their heavily advertised money pits. A more suspicious man might suggest they had something to gain by ensuring those properties were quickly snapped up at more respectable prices in the following days. But I'm not a suspicious man, so I won't go there. I'm sure they were simply purchased by fools, rather than by vested industry backed buyers.

The image below depicts the situation on Monday, after the first two properties were sold.

So who were the winners out of this whole fiasco? Easy. George and Vicki Stoupas, the elderly couple who originally sold the four derelict dogboxes to Watercress Productions for a cool $3.6 million.

Two couple of my favourite sayings come to mind. 'A fool and his money are soon parted' and 'Theres a sucker born every minute'.

If Channel Nine and Watercress have done one thing, they've shown us who the greatest fools and suckers are. 


The Block 2012 was covered well on Australian Property Forum: The Block 2012 Auction  Analysis

(It seems Channel 9 was careful to avoid another disaster like 2011!)

Monday 8 August 2011

RBA Cracking Up

The interest rate futures market as of 08/08/11 is currently predicting six interest rate cuts. Yes, count them, six! And that includes two cuts next month (September). Does anyone else find this quite unbelievable considering the RBA rhetoric over the past year. We all know the inflation genie is out of the bottle, and the RBA's stated primary objective is to keep inflation under control, within their 2-3% target range.

Yes, The Reserve Bank promised to stamp down hard on inflation, and the recent CPI readings gave them ample reason to raise interest rates this month. But quite bizarrely, they chose to sit on their hands this month and do nothing about Australia's now well entrenched inflation problem.

Has the RBA abandoned their inflation target? I fear they have. Successive core inflation increases of 0.9% should have meant an August interest rate rise was a certainty. Inflation is on the march, not just in Australia but across the globe, and central banks everywhere are stubbornly refusing to act.

Of course there are serious financial issues across Europe and America. Everyone knew those global debt concerns were not resolved post GFC, and have still not been resolved today. The sovereign debt concerns are unresolvable, and can therefore be used as a permanent excuse by the RBA and other central banks to tolerate high inflation and avoid performing their duty of stamping down on inflation. This appears to be the position taken by other global central banks since the GFC, in many cases keeping rates close to zero while tolerating high inflation.

The Reserve Bank's failure to act in August has destroyed their credibility. After jawboning and promising rate cuts for months, they demonstrated a weakness and unwillingness to act, presumably due to pressure from business and government. Their bluff was called, and they backed down. Financial markets no longer place any faith in RBA promises, and are pricing in six rate cuts despite the RBA claiming to hold a tightening bias.

Not only do we have out of control inflation in Australia, we also have full employment, rising incomes, and house prices still at bubble levels. If the RBA can't raise rates now, how do they expect to be able to raise them later as inflation continues to rise while those other economic indicators weaken? Now is the time to act, before inflation becomes entrenched as an acceptable part of Australian life, as happened in the 80s. Failure to act now will lead to an even worse recession in the future. Kicking the can down the road just delays the inevitable and makes it worse.

Since that fateful RBA decision last week, the Australian dollar has tumbled and stock markets across the globe are reeling. Some commentators are saying GFC2 is here (although I would argue GFC1 never ended). If the RBA truly has abandoned their inflation target as I (and the financial markets) believe, then we could indeed see them slashing interest rates again as they did in 2008. This will most likely result in an expectation of much higher inflation, and a negative feedback loop of high prices across the board.

Instead of taking our medicine in 2008 (the recession we should have had), the government and RBA kicked the can down the road to 2011. Now the recession we need to have is much larger, but the RBA and government will probably try the same tactic once more, by dropping rates and stimulating the market one last time. The RBA is going for the easy option - inflating our way out of our debt problems, instead of taking the correct option, letting nature run its course, and accepting that a recession is necessary. Every boom must be followed by a bust. Every bubble must be followed by a crash. That's the natural order of things, and you can't kick the can down the road forever.

But they will try their best.

As the rest of the globe disleverages, the RBA and our inept government will attempt to steer Australia into one final debt fueled boom, a last hurrah for the Australian economy and housing market. Once the Australian population realises high inflation is the new RBA policy, they will decide en masse to trade their earnings for tangible assets (which for most Australians, means real estate). This final stage of the bubble is known as the Crack Up Boom. Yes, those real estate spruikers will be out on the streets once more, convincing working Australians to gear up into over-valued houses at the very peak of the greatest property bubble in history.

I'll leave you with the words of the great Marc Faber.

I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it.

Wednesday 27 July 2011

Everything's Affordable!

This week, I had an interesting discussion with several members of an Australian property investment forum.

Foolishly, I made the newbie's mistake of mentioning that Australian house prices had become less affordable over the past couple of decades.

What a faux pas!

Immediately, I was pounced upon by the more senior members of the forum, keen to set me right and correct my silly mistake.

Courtesy of those wise property investors, I thought I'd share their thoughts on where I was going wrong.

Let's begin with my simple statement that preceded the storm.

Different Here: "The house price to single income ratio used to be 2-3x. Now it's 6-7x. People on single incomes are priced out of homes they could previously afford."

-- "Really? What if that income is $180,000 or more?"
-- "Sure you can buy a home for a 2-3x income ratio. Stop whinging" 
-- "Buying your first home is never easy. It wasn't easy 20 years ago, and it is not easy now."
-- "Yet there are still those on single incomes doing it. Funny that!"
-- "Instead of waisting time rubbishing property on a property forum. Sit back, save and wait for things to improve."
-- "You can continue renting my properties while you wait for the crash. Even if it crashed I wouldn't sell it to you"
-- "This kind of comment/allegation is false without qualification."
-- "Where do you want to buy? What is unaffordable? Good suburbs 20 years ago were 'unaffordable' for most people."
-- "I can show you where to buy affordable housing, but you don't want that. What you want to do is rant and rave about how hard it is nowadays. Well you know what? Bleating about it here, to a bunch of investors is not going to change anything."

Most of those comments were accompanied by much 'eye rolling', if I'm reading those emoticons correctly. You could just feel the collective sigh among the property investors -- 'here's another nutter who thinks house prices are too high, get a load of the crazy guy'.

And then someone (who had been a member of the forum since 2005) kindly posted this image for me.

-- "Different Here, are you a student by any chance? We see a number of kids here come and go; mostly in shock at their own seemingly-distant ownership prospects, and the discussion always takes the same route: disbelief, incomprehension, emerging comprehension, half-baked hope, deepening personal reflection, explicit commitment to study harder and get into a career, too much time wasted on SS talking about piffle instead of studying, bad grades, silence."


Let's set the record straight. I'm not a student. I'm a middle aged father of two. I'm not renting. I already own my home, fully paid off. I'm not 'rubbishing' property. I wasn't 'bleating', in fact I only mentioned the affordability decline in passing, I wasn't even making a big deal about it.

What are these property investors so scared of, that they must attack a new member for mentioning the fact that Australian homes are less affordable then they used to be? A new member is labelled a troll for daring to mention Australia's affordability crisis?

Ironically, just today the Sydney Morning Herald published this article.

Capitals face at least a decade of Unaffordable Houses.
AUSTRALIAN house prices have moved from being affordable to severely unaffordable in the past 10 years - and Sydney is still the least affordable capital city, a new study shows.
The study, by the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra, and AMP, says it will take at least another 10 years of flat house prices, coupled with income growth, for houses to regain an affordable status.
The study found median house prices in Australia grew 147 per cent between 2001 and 2011 to $417,000, while median after-tax incomes only increased 50 per cent to $57,000.
This pushed the price-to-income ratio - the number of years' worth of income needed to buy a typical dwelling outright - from an affordable 4.7 to a severely unaffordable 7.3.

In the last decade alone, Australia's house price to income ratio has escalated from 4.7x to 7.3x. That's up from approximately 3x two decades ago. House prices are almost twice as unaffordable as they used to be despite the property investor claims to the contrary.

You see, according to the property investors, nothing can ever be considered 'unaffordable' because there's always some rich family who can afford it. Nothing can ever be unaffordable, because if you make enough sacrifices anyone can buy a small run down unit. So what's the problem?

The problem is two decades ago, single income families could easily afford a certain standard of dwelling. Now it requires dual incomes to afford that same standard of dwelling. Houses are less affordable then they used to be, it really is that simple.

Of course, if you make enough sacrifices, scrimp and save, and take on a massive soul destroying mortgage, then anyone can 'afford' to buy. But does that make it affordable? I don't think so. Housing is not affordable if we're forced to trade housing for quality of life. If we're forced to take no holidays, never treat ourselves to any luxury, delay having children, put our children in daycare all week, just so both parents can work 80 hours a week to 'get on the housing ladder', then housing is categorically not affordable.

Yes, property investors, 'good suburbs' were always more expensive, cheap housing can always be found in the less desirable suburbs, people on single incomes are always able to afford something if they make enough sacrifices. But this doesn't change the fact that affordability has declined.

It used to be hard for young families to afford a home, but now it's twice as hard.

The APM NATSEM Report is here.

The Neverending Shortage Story

If you spend much time reading mainstream media news, you'd be forgiven for thinking Australian streets were teeming with homeless people. Wall to wall struggling families, living on street corners, exposed to the elements and begging for their next meal.

Well, I haven't seen them myself, but I'm assured on a daily basis that Australia has a never-ending critical shortage of housing (despite this, the same media outlets also tell me we need to import hundreds of thousands more workers, but that's a never ending story for another day).

Back to the critical shortage. In short, it's bunkum.

A recent report by Earthsharing Australia has shown the Speculative Vacancy Rate in Melbourne to be almost 5% or 46,220 homes. This is more than double the REIV’s Rental Vacancy rate of 2.4%. Earthsharing have shown that a large volume of housing is being inefficiently allocated to the population, inflating house prices and contributing to urban sprawl. The owners of these vacant homes, property speculators, are investing purely for capital gain, hoping that a greater fool will purchase the dwelling from them later, for a higher price. This type of investment structure is often referred to as a Ponzi scheme.

In 'Real Estate 4 Ransom', Earthsharing's soon to be released documentary, the group will discuss this glut of misallocated dwellings and the impact on Melbourne society. Watch the trailer for 'Real Estate 4 Ransom' below.

Real Estate 4 Ransom Official Trailer from Real Estate 4 Ransom on Vimeo.

In related news this week, the Sydney Morning Herald ran with a sensational article titled 'Tenants run for cover as vacancy rates plummet'. Designed to strike panic into the hearts of tenants everywhere, what followed was a thinly veiled infomercial for the real estate industry. It's going to get worse! Stop renting! Buy now! That was the hidden subtext. But look closer at the statistics (statistics the article manages to brush over quickly before warning us that the 'standard of living for the middle working classes is likely to deteriorate'.

The statistics show that far from vacancy rates plummeting, they're actually relatively flat. In some places, the vacancy rate is rising. In fact, the national rental vacancy rate according to SQM Research is 1.9%, which (apart from a brief rise in 2009) is roughly where it has been since 2005! Furthermore, these figures are likely to underestimate the true vacancy rate, because they only include rental properties advertised for three weeks or more.

Back to those homeless people. According to Homelessness Australia, 105,000 Australians are homeless
on any given night.This is an appalling statistic, given that almost 50,000 homes are vacant in Melbourne alone, and each of those homes could probably comfortably house several homeless people.

Why does the Australian government support the misallocation of housing to speculators, many of whom own multiple dwellings, when over one hundred thousand Australians are homeless? Why do we support those speculators with grants and tax incentives like negative gearing and capital gains tax discounts?

The answer is simple. Our governments are terrified of the economic impact of a property crash. If they don't artificially prop up house prices using these means, then prices are likely to fall, resulting in a decline in GDP, rising unemployment, and ultimately an election loss for that government. That's why every government, regardless of their pre-election commitment to affordable housing, will always encourage higher house prices once they gain office.


Lower house prices would offer dramatic benefits to Australian society. Speculators would be forced to sell the excess dwellings they currently hoard, single income families could once again afford decent housing, and the homeless people could be offered that shelter from the elements they badly need. And those lower house prices would free up disposable income, eventually reduce national debt levels, and enable capital to be allocated to more productive sectors of the economy.

That's my dream. My fear is this won't happen in my lifetime, and it certainly won't happen in sufficient time to benefit my own children, or any children growing up in Australia today. Not while our inept governments are in charge.

Monday 25 July 2011

Second Post

I changed the colour scheme, added my logo, and added a media sharing bar. It's all coming along nicely.

The kangaroo image is one I've been using on other social media sites for a while. It represents the old Australian adage, well known in property discussion circles -- 'it's different here, we've got kangaroos!'.

Hello. My First Blog Post!

Hello! This is my first blog post. I'm not quite sure what to say, so I'll just keep typing and see what happens. My name is Tony, and I decided to establish this blog so I can rant and rave about the inadequacies of the Australian property market to people who might care. God knows I drive my friends and family crazy listening to me, so perhaps this new outlet will give them some peace and quiet!

What did I want to talk about on this blog? For a start, I expect I'll be blogging about the housing affordability crisis, the inefficient and wasteful allocation of shelter to the population, a system that sees disadvantaged people on the streets while others are fortunate enough to own multiple homes. I hope to take one or two major property news items each week and give you my thoughts and analysis, for what it's worth (probably not a lot).

Do I expect this blog to make a difference? Probably not. The real estate industry and their mainstream media backers pervade every aspect of our society. They have a stranglehold on the news and 'data' presented to the public. And the government will always do their best to keep house prices high at all costs. But if my little blog helps just one or two people see the light, then it will, in my opinion, have been worthwhile.

It's Different Here! Helping ordinary people understand why Australia is the only country in the world where housing bubbles never burst!

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