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NO B.S. FRIDAY: Shock! House prices to fall 80%!

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I show you how the media industry actually works, so you can stop yourself from being sucked into their shenanigans.

80%?!?! That got your attention, right? All eyes on me.

(Look at me, look at me, look at me, Kimmy.)

This is exactly how the media industry works. Attention is the most valuable commodity there is. And there are all sorts of tricks out there to suck you in.

But I’m going to break it down, so you know exactly how it works, and how you can protect yourself from it.

But hang on… So that just a joke then – about house prices falling 80%?

Nah. That could totally happen. All it would take is for the Earth’s magnetic poles to reverse (it’s happened before, it will happen again!), unleashing a cataclysm of earthquakes, tidal waves and volcanoes.

Then, just as what’s left of humanity is picking up the pieces, bam, deadly Ebola virus outbreak.

In that scenario, I predict Australian house prices would fall 80%, perhaps even 85%.

Someone put me on the telly.

Ok, how are you feeling right now? Probably a little annoyed right? You read the title, wanted to find out more, and then realised that Jon was on another of his benders.

(Why wife calls it “Margarita Madness”).

I’ve taken time out of your busy day, and wasted it with some inane ramblings.

Just like 60 minutes did.

Last Sunday, Chanel 9's 60 Minutes program, did a terrifying piece on Australia’s looming house price crash. In it, they suggested house prices were about to fall a massive 40%, and they made it sound like that is what a lot of smart and important people were expecting.

Only they weren’t. The 40% figure came from Dr Martin North – a bonafide data nerd. He’s actually pretty good – I’ve used some of his statistics in this blog before.

The thing was, that wasn’t what North was actually saying was going to happen. What he actually said is that there was an outside chance that house prices could fall that much, If (and it’s a big IF) there was some kind of re-run of the global financial crisis.

Thing is though, 60 Minutes chose to edit all that out. You had to actually go to his blog (and how many people did that?) to get the complete picture:

… It is not my central scenario. My best call would be in the region of 15-20% from top, over 2-3 years, but with some risk of a worse outcome. Nine chose not to cover these alternatives, though I went through each in the recording…

So yeah, if there was another GFC, it’s conceivable house prices could fall 40% (for a time). And if the magnetic poles reverse, it’s conceivable house prices could fall 80%.

So what’s going on here?

Partly this is about that old saying that “good news never made a paper sell,” but it’s more than that.

As some one who works at the coal face of marketing, there’s some tried and tested marketing strategies at work here, and 60 Minutes gave us a text-book case in execution.

The term you need to know is ‘disturbance marketing’.

This is the idea that before you can sell someone anything, you need to get their attention.

Trouble is, getting someone’s attention is hard. People just tend to put their heads down and go about their lives, generally trying to ignore the gazillion sales pitches they get on any given day.

And so, as a marketer, one of your key challenges is to jolt them out of this slumber. You need to find a way to break up their routine so they actually start paying attention. You need to disturb them.

And so the prospect of a 40% fall in house prices, or that fact that “Australia’s debt bomb is about to explode”, would be very ‘disturbing’.

Job done. You have our attention.

The key thing that follows then is an emotional hook. You’ve stopped us in our tracks. You now need to grab us by the heart strings and hold our attention.

And to that end, 60 Minutes trotted out three ‘victims’ of the coming housing crash.

All three were struggling to make their mortgage repayments (OMG, imagine if that was us!). One was sick, one was unemployed, and one had just seen their interest only loans rolled over to principal and interest.

Now at this point, it all just struck me as pretty strange. I mean take the sick bloke and the unemployed bloke. Should it come as any surprise that they’re struggling to meet their mortgage repayments?

I mean, imagine the headline: “Shock: Man with no income struggles to pay his mortgage”.

It’s hardly news right?

And then there’s the guy who was just about to retire, but then the bank rolled the loans on his portfolio of investment properties over to principal and interest.

That’s right, he had a “portfolio” of investment properties. They didn’t say how many, but it looked like a few.

Also, he had to have known it was coming. All interest only loans roll over at some point (usually after 3 or 5 years). So it was hardly a shock that he had to start paying more.

“Shock: Banks make man follow payment schedule outlined in his mortgage application”.

But I’m looking at these three stories, and I’m wondering what they’ve got to do with anything.

But they’re not there as evidence. They’re there purely to make you go, OMG, imagine if that was me. Imagine if I was in those shoes.

You have my complete and undivided attention.

And at that point, your prospect is primed for your sales pitch. But hang on, 60 Minutes doesn’t have a sales pitch..? Oh, but that’s right. Their sponsors do.

Roll commercials.

And this is how the media industry works.

So long story short, 60 Minutes is scaring the good folks of Australia, because that’s how they sell advertising air time.

It is regrettable that such a trusted institution is playing this game, but that’s just how it is, and how it’s always been.

You might also wonder if 60 Minutes is the hard hitting news force it used to be.

Because what followed the housing story?

A story about a woman who worries that the people who said they would clone her dead dog for her, just went out and bought one from the pet shop.

Just saying.

JG

Why long-term Melbourne property prices will rise…

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The Victorian Government is on a hiding to nothing – there is just nothing they can do to bring house prices down.

How desperately chronic is the housing shortage in Australia?

This chronic – chronic enough that this fluff from the Victorian government about streamlining the energy connection process can get passed off as an ‘affordability solution’:

Power companies AusNet Services, Jemena and CitiPower, Powercor and United Energy have agreed to a series of commitments to speed up the rollout of power in the areas where they provide electricity, state Treasurer Tim Pallas said on Tuesday.

“We’re acting to make sure new homes are connected to electricity faster, cutting costs, and making it easier for Victorians to access new housing,” Mr Pallas told an Urban Development Institute of Australia audience…

UDIA Victorian executive director Danni Addison said the changes would help speed up housing production.

“The urban development industry is working hard to meet the demands of population growth, but people can’t live in a home without power,” Ms Addison said.

How is this about helping boost “affordable supply”? I mean sure, it helps at the margin, and it’s definitely better than not doing it, but still I can’t see millennials priced out of a home organising a ticker-tape parade over this one.

“Yay, this will shave at least $1500 off the purchase price. Finally the dream of owning my home is within reach. Honey, pack your bags.”

But seriously, this probably is the best that any government can muster.

Because, meanwhile, prices in Victoria continue to march onwards to all sorts of crazy.

Land prices are the real flash point. HIA-Corelogic reckon that Melbourne’s median lot price per square metre surged a massive 30% in the past year. That takes the typical median lot price per square metre to $359,000.

Remember, these are Greenfield sites, many of them located so far from the CBD of Melbourne that they have West Australian post codes.

And even then, it’s going to cost you $360K for the land, even before you start looking at landing a caravan on it, or whatever you can still afford.

And this is all despite the fact that median lot sizes in Victoria are actually shrinking!

A few weeks ago, Satterly Property Group announced they would start offering lots in Melbourne as small as 80sqm – less than a fifth of the size of a traditional lot – in an attempt to boost profits.

Sorry, I mean, in an attempt to offer anything that could reasonably be considered ‘affordable’.

And so in Melbourne, if you don’t have at least half a million, there’s no chance of securing a new house and land package, no matter how far you are willing to commute.

How has this happened? How is it still happening?

This is the chronic undersupply in action. When there’s too many people and not enough homes, then prices will rise. It really is as simple as that.

And while supply has continued to come on-line at its usual dribble in Victoria, the population has actually boomed.

Melbourne is now adding a full MCG worth of people every year.

That’s a million people every ten years:

There is just no planning response that the Victorian government can come up with that can deliver the housing that is needed to stop the market getting tighter and tighter and tighter.

Which in turn means, prices will just go higher and higher and higher.

You know, except streamlining power-supply regulations…

That’s going to have a big impact.

JG

No B.S. Friday: This Guy’s Interview Sent Sane People Bonkers

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The reaction to Steve Bannon’s interview was as predictable as it was off-beam. This is why it’s dangerous.

This is one of those things you get used to, but then you step out of the country for a bit, and you realise how ridiculous it actually is.

I’m talking to the reaction to Steve Bannon’s interview on ABC’s 4-Corners program.

The general flavour of the flak the ABC is getting is that they shouldn’t be in the business of ‘enabling psychopaths’.

The poor ABC must feel like there’s no way they can win. Conservatives continually accuse them of bias, but then when they actually interview a conservative, the progressives start howling at the moon.

Andrew Bolt had the inside running:

The Four Corners interview with Steve Bannon this week has caused a deep rift at the ABC between those who believe holding figures like Bannon to account is exactly what the flagship program should be doing and those who are unhappy the former White House adviser and Breitbart editor was given an ABC platform.

Those in the first camp include, of course, the interviewer, Sarah Ferguson, and her executive producer, Sally Neighbour, and established ABC stars Leigh Sales and Virginia Trioli.

Those in the other camp tend to be the younger, more ethnically diverse journalists including ABC Life’s Osman Faruqi and digital news producer Jennine Khalik.

Unbelievable. Have all those social justice warriors learnt nothing in the past couple of years?

First, how is Steve Bannon not interview worthy? He was literally one of the key figures behind getting the most controversial American president elected, ever. Of course, we should be taking an interest in what he’s got to say.

Especially, for the record, what he’s got to say about China. He reckons the US is at ‘economic war’ with China, and Australia is at risk of becoming a ‘tributary state’ if we don’t start taking them more seriously.

That is definitely an opinion that needs more air-time. I find the press’s silence on China, which, remember, is still pretty much a totalitarian dictatorship with clear global ambitions, just baffling. Almost conspiratorial…

Anyway, back to the ABC story. So the ABC go and interview arguably one of the most important figures of our times, love him or hate him, and progressives go into conniptions about it.

The ABC should not be giving “ethno-nationalist racists” a platform, they argue. The media, and especially the ABC, should “challenge enthno-nationalism through a journalism that reflects Australia’s diversity.”

And that means, apparently, not talking about it all.

Seriously, what world are they living in?

They seem to believe that if they can ‘control the discourse’ – control what gets said where and the sorts of ideas that people get exposed to, then they can control reality.

There is all sorts of wrong with this.

First, f#&k off and leave me alone, Dad. What kind of paternal crap is it where you don’t trust people to have exposure to controversial ideas?

Seriously, do we really think that listening to some of Steve Bannon’s ideas is going to flip a regular, latte-sipping suburban liberal into a cross-burning racist? Really?

And rather than dealing with the expressions of the problem, why not deal with the actual causes? Why not start wondering why Trump’s ‘deplorables’ are feeling totally f%@ked over by the elite and the global trading system. Ask them about their tragically high suicide and substance abuse rates, their broken communities. Ask them why they’re looking for radical solutions.

But no, the left’s solution is to throw piss-bombs at the movement’s figure-heads, and yell “racist” at any one who takes an interest.

Second, even if it was a good idea, you just can’t control reality this way.

We know this at a personal level. We call it “repression”.

I mean, imagine if my heart was yearning to be an inner-city theatre director with a small dog. But the controlling mind of me decided that I needed to be a construction worker with a SUV.

Historically our strategy has just been to try and banish any tendencies to take an interest stage design at their inception. Treat them as a thought crime. Beat my self up about it. Get angry at my inner theatre director, and then at all theatre directors. Smother, shut down, deny.

This is repression. And we know it doesn’t work. It doesn’t solve the problem, it just makes the problem show up somewhere else.

This is literally the left’s strategy with Trump and Bannon.

It’s not acknowledging pain or any problem at all. As soon as anyone speaks to that pain, they get shut-down, denied.

So that pain will find an outlet, one way or another.

And what I would say to those bleeding heart liberals is that if you actually wanted to create another Hitler, an actual populist monster, this is exactly how you would go about it.

Apply more and more pressure on the working people while denying any outlet for their pain.

Sooner or later, boom.

From where I sit, it’s as obvious as the nose on my face.

But seriously, Australia and the ABC are just lost in a dream.

How Trump-onomics can make you rich…

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When I read this, Trump suddenly made sense.

How do you make money off Trump?

The first point I would make is that Trump is an intensely polarising figure, and the perfect President of our times.

That might sound like a contradiction but go back to Douglas Adams’ Hitchhikers Guide to the Galaxy:

The President is very much a figurehead… the qualities he is required to display are not those of leadership but those of finely judged outrage. For this reason the President is always a controversial choice, always an infuriating but fascinating character.

His job is not to wield power but to draw attention away from it. On those criteria Zaphod Beeblebrox is one of the most successful Presidents the Galaxy has ever had- he has already spent two of his ten presidential years in prison for fraud.

An infuriating but fascinating character..? A finely tuned sense for outrage..? That’s Trump to a capital T.

Trump is not an aberration. Trump is just the end game in a political/economic/media ecosystem rotting from the inside out. He’s not an outsider ruining the game. He is the master of the game.

And so he is the perfect President for our times. He is the embodiment of our times.

And love him or hate him, I think we can all agree he’s singing from his own Hymn sheet. He’s not your classic establishment conservative, and he’s definitely not a progressive.

He kind of exists in his own political spectrum.

And that has some interesting manifestations.

I mean take China. China has been taking the world and the global trading order for a ride for decades.

How is that Trump is the first person to call them on it?

I also think Trump understands what the President’s job is – it’s simply to get elected and then get re-elected. That’s it.

The system is incredibly short-sighted. That’s just how it is. You get an 8-year horizon at best.

And so I think the Trump suite of policies make sense in the context of this short-termism.

So busting up treaties like NATO, or global trade agreements – these things probably don’t help build trust in America, or help the global economy in the long run. But in the short run, your base loves you, you repatriate a tonne of money back home, and stocks and the economy jump.

In the short run, you win. In the long-run, it’s someone else’s problem.

Or what about increasing inequality by dolling out tax cuts to the mega-corporations, while simultaneously trashing the budget. Short-term, it’s a bonanza. Long term, that stuff can bite hard.

So I think that is how we can think about Trump. He’s a canny president just living in the moment.

And that might be all he cares about.

So how do we play that?

Well, I think it’s a big positive for America and America-exposed countries.

You can already see it in the American stock market, and I’ll think you’ll soon see it in countries like… well, Australia!

We make a lot of our economic ties to China, but America is still the bell-whether to our flock.

Take a look at the correlation between US and Aussie Consumer sentiment:

These two generally move in pretty close lock-step. But right now, American confidence is soaring.

Will Australia follow? My guess is yes – as the US and global economy improves, Australia will receive a boost, and since a lot of indicators are already pretty robust (unemployment etc), it should be good times ahead.

The only fly in that ointment could be a serious crash in China.

And that’s the other part of playing Trump. While it’s good for America and the major economies, it’s giving emerging markets a bit of a hammering.

These nations (like Turkey) found themselves flush with cash as money fled the US post GFC.

But now that America is on the up again, that tide of money is turning, leaving some emerging markets high and dry.

The danger is that this tide, along with Trump’s tariff war, seriously smashes China.

That would probably be a net negative for Australia.

But I’d be placing that as an outside chance for now.

Anyway, the only point I want to make is that even if you hate Trump for his long-run impact on politics and the planet, he’s having a real impact on markets right now.

And that means there’s opportunity there if you know where to look for it.

Thought the codes kept you safe? Think again!

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A new class-action will have a big impact on the building industry.

I reckon the most interesting case before the courts right now is a class-action by the owners of apartments in Melbourne’s Lacrosse residential tower.

Basically, Lacrosse had the same outside cladding that was responsible for the Grenfell disaster in London. There was a fire in 2014 (thankfully no one was killed) and the owners are being forced to replace the cladding.

The owners, obviously, are trying to sue the builder, LU Simon, to make them pay for it.

From the AFR:

They want $24 million. On Monday, owners of the 328 apartments in Melbourne’s Lacrosse residential tower will start their long-awaited case for damages against builder LU Simon, over the combustible cladding placed on their building…

As they seek redress including an estimated $10.7 million in recladding costs, $1 million in lost rent and emergency accommodation costs and over $500,000 in insurance premium hikes, the Lacrosse owners are not the only apartment owners in Australia trying to resolve a cladding problem not of their own making. But they are the highest-profile group so far. And there will be more…

The Lacrosse owners are now finalising a loan of $11 million to replace the polyethylene-core panels that still wrap around their building on Melbourne’s La Trobe Street…

Combustible cladding forces insurance premiums higher, devalues apartments and even makes apartments unsaleable… And when it catches fire, it is dangerous…

It’s going to be really interesting to see where this one goes.

The best-case scenario for the owners is obviously that the builder has to foot the bill. That leaves their property values, (after the dangerous cladding has been replaced) more or less in tact.

But it’s not clear that it is going to go that way. There’s a good chance the builder did everything by the book – purchased cladding with the right certification and installed it correctly.

The problem could well be, as a lot of people in the building industry have been telling me, that sometimes when you’re buying cheap building materials from China, they’re not exactly as they claim to be.

For example, not as fire-retardant as they claim to be.

So the builder might have been doing the right thing, putting their faith in the certification processes behind the materials. Is it really their fault if the Australian or Chinese government certification process were subject to rorting?

It hardly seems fair to make them pay if they’ve been doing the right thing.

But that just leaves our owners on the hook, and it’s definitely not their fault.

But even if the courts find the builder liable, where does that leave us? How many builders and developers across the country have used materials that they thought were up to code?

Do we now say that every builder in the country is responsible for testing the quality of the materials that they use and ensuring that they’re up to code? Like, seriously?

That doesn’t seem workable.

It may also be a moot point in some places like NSW. The government there recently reduced the warranty claim window from seven years down to just two:

Also from the AFR:

Many owners of the 1000 NSW buildings identified with possible non-compliant cladding won’t be able to claim against their developer or builder because the two-year window to make such claims will have passed, a property lawyer says.

A change in law two years ago cut the window to make such claims from seven years, in part to reduce the risks for the statutory warranty insurance the state government underwrote.

This meant owners of buildings built under a contract agreed after 1 February, 2012 – which includes many built in the current housing boom – would not be able to claw back the costs of rectifying any non-compliant cladding. This is the view of David Bannerman, the principal of North Sydney-based Bannermans Lawyers.

So then it’s on the owner’s head?

So what, our due diligence as buyers now involves chasing a paper trail of materials used to make sure they were up to code – I mean, genuinely, really-truly up to code?

Who’s got time for that?

This is all just throwing a lot of uncertainty all over the place. As someone who buys property, but also as someone who develops property and engages builders, this is all just a risk I don’t know how to place.

Because while I think the flammable cladding is the highest profile example, I get the feeling it is the thin end of the wedge. Who knows what next?

So I feel sorry for the owners of Lacrosse, I feel sorry for the builder, but I’ll be watching what happens closely.