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How to make and how to lose $100K in 13 months

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Flipping always looks like a great strategy in the good times. But are some investors about to come unstuck?  

 Sometimes you strike it lucky in property.  

Like this story of a guy on the Gold Coast who flipped a parcel of land for a $130K uplift.  

(The story appears in the UK’s Daily Mail, because there’s a picture of him with his girlfriend in a G-string. Pure class).  

A 23-year-old man has made more than $101,000 profit after buying a plot of land and mowing it twice. 

Anthony Dart, 23, bought the property on the Gold Coast for $310,000 and 13 months later he sold it for a staggering $439,000. Mr Dart told Daily Mail Australia he made a solid profit of $101,000 after expenses. 

The young entrepreneur was shocked by how much the property appreciated in value in just over a year. 

Hats off to him. From what I know of the Gold Coast market, at that price I expect he bought under market value, and that’s what made those kinds of gains possible.  

And with property prices on a tear-away in recent years, a lot of people would have similar stories.  

Trouble is though, people seem to think that these kinds of stories are the norm.  

Amazing deals like this happen when you do your research and buy under-market, or when you do your research and buy in an area primed for growth.  

That is, when you do your research.  

If you’re not doing your research, then you’re only going to get these kinds of results if you get lucky. And if you’re relying on luck, then you’re just gambling.  

And all gamblers lose at some point.  

Western Menbourne might now be about to become a case in point.  

There’s been a bit of a frenzy going on out there in recent times around house and land packages.  

It’s pulled in a lot of speculative activity, with buyers looking to flip their purchases before settlement.  

As prices stall though, there’s an air of panic brewing:  

Speculators who hoped to get rich on a boom in Melbourne land prices are “panicking” as settlements loom and they can’t find developers to on-sell their sites to, according to Resi Ventures’s Khurram Saaed, who has been developing for 15 years. 

Mr Saaed said he was getting one call a week from panicked speculators, including one buyer who had put down $21 million in deposits on a number of sites and risked losing all their money. 

“These are people who have been successful in other business, and who have just bought land with no due diligence in the hope of making a lot of money in three to four years’ time by flipping the site prior to settlement,” he told The Australian Financial Review. 

And there’s been a strong rise in people taking to gumtree to offload their properties, as real estate in general takes longer to sell:  

A rising number of land owners in Victoria are selling off-the-plan housing lots on classified advertisement and community website Gumtree ahead of their expected settlements next year. 

In the first three weeks of October, nearly 50 advertisements have been uploaded – more than twice the number in September – offering sales of lots in communities like Dahua Group’s Orchard project in Tarneit, Satterley Property Group’s Botanical in Mickleham, MAB’s Merrifield in Mickleham and Stockland’s Edgebrook Community in Clyde and Cloverton in Kalkallo. 

Other land sites for sale are in places such as Greenvale, Melton, Lyndhurst and new suburb Weir Views, all of which are about 20 to 35 kilometres from the Melbourne CBD. 

I’d be keeping a wary eye on this space.  

I don’t think the growth corridors of Western Melbourne were bad places to invest, if you were genuinely investing. I think they’ll be decent going forward.  

And I wouldn’t say no to buying there now… but I would be driving a very hard bargain with eyes wide open.  

But if the flipping spree was as widespread as they say it was (possibly isn’t, who knows), then some extra diligence really is in order.  

Don’t say I didn’t warn you. 

JG 

NO B.S.FRIDAY: Such is Life…

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Why do we love bushrangers so much? Are we all just bushrangers too busy with our day jobs?

November 11th was Remembrance Day, but I also noticed it’s the 138th anniversary of Ned Kelly’s death. They hanged our most famous bushranger on November 11, 1880.

I feel like we must be due for another round of bushranger romanticism. Seems to come around every 30 years or so. I mean, it’s been 15 years since the last Ned Kelly movie.

(Update: they’re in the process of making one right now. There you go.)

But why do we love bushrangers so much?

Kelly has more brand recognition than any Australian has ever had, including Don Bradman, well over a century after his death.

And Kelly’s life was hard. He was born into a poor family, took a lot of knocks along the way, before finally going to the gallows at the tender age of 25. Not a lot to envy there.

But we collectively get starry-eyed, and imagine ourselves in an iron suit, both guns blazing.

(Or is that just me?)

Bushrangers were a product of that time, and our romanticism has as much to do with that period in Australian history as it does with them.

I mean, if Ned Kelly were alive today, he’d probably end up on Today Tonight, with a camera man chasing him through the streets of Melbourne. Clank, clank, clank. “Mr Kelly. We just want to ask you a few questions.”

No one is getting misty eyed about car thieves in tracky-daks and sneakers these days.

But still there is something in the archetype of the bushranger that calls to our spirit.

To me, I think the key selling point of brand bush-ranger is ‘rebelliousness’. That’s what elevates them from the muck of humanity’s dregs, into the rarefied air of cultural hero.

But what does that say about us?

Why do we love and celebrate the rebellious? The rule breakers? The trouble makers?

Do we secretly long to cast ourselves in that light – break the rules, trash the law, kick down the doors and leave our name in bullets in the wall?

Are we all just bushrangers, too busy with our day jobs to cause anybody any trouble?

Yes. Yes we are.

The world is repressive. It crushes our freedom, our unique spirits, our playful, child-like natures. It’s just how it is. As we get older, we find the adult world with all its rules and regulations has us all bound up in a straight-jacket.

The question becomes how do we respond?

Do we suffer in silence, taking a photo-copy of our bottoms when the boss isn’t looking in an impotent act of defiance?

(Brian, I know it’s you. Just stop it, ok. It’s unhygienic.)

Or do we go totally off the hook, become a renegade, dying in a rain of bullets and glory?

That’s sexier, but still pretty sad in the end.

Or do we find another way? A third way? Do we find a way to push back the prison walls of the world, and find a way to live on our own terms, with our own money, with our own drive and our own autonomy?

Do we find a way to keep expanding the sphere of our own freedom?

This has been one of the central missions in my life in recent years. Finding that freedom.

Sure, that’s partly about money. Money can buy you many freedoms in life – the freedom to travel, the freedom to follow your own interest, freedom from the stresses of a hand-to-mouth existence.

But it’s also about making it part of my life goals – finding a career that let’s me set my own hours and schedule. Living somewhere that gives me easy access to the things I love doing. Putting energy into my relationships so they are supporting me, rather than holding me back.

But ultimately, it starts with recognising that we are all living in Ned Kelly realities – realities where the system is not set up to maximise our freedom and fulfilment.

This is the first step.

The fight then and must come second.

Such is life.

JG

The biggest risk for property right now? Morrison.

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Could the response to the Banking Royal Commission be too harsh? The RBA is clearly worried.

One of the headwinds looming for the property market is the fall out of the banking Royal Commission.

I mean, it was so serious they had to get ‘Royalty’ involved. I’m sure Meghan and Harry were taking a very keen interest in between cuddling koalas.

We’re already seeing a chilling effect on the credit market, as the banks try to get ahead of the game and get their houses in order.

And the spikey end of the stick with that is serviceability calculations. One of the key revelations is that the banks were possibly lending people more money than they should have, particularly by under-calculating their living expenses.

So the banks are going hard now, and mortgages that would have just got a rubber stamp 18 months ago are now being poured over with a fine tooth comb.

That’s been a bit of a drag on things.

But that’s all before the Commission has even handed down it’s report, and the recommendations that are probably going to come with it.

That’s due in February.

That creates a political risk in my mind.

It’s political because the government will have to respond to the recommendations.

And with the Morrison government taking a belting on every front right now, there’s every chance we could get something a tad ‘populist’.

(Remember it was Morrison who came up with the bank levy tax.)

And that could leave the banks reeling, and it may be the blow that knocks lending to the floor.

APRA restrictions, uppercut. Royal Commission preliminary findings, right jab. Morrison implementation of findings, whirling haymaker.

Now I’m no fan of the banks, but I am a fan of property and business lending, and it would be a shame if property owners, investors and business owners end up bearing the brunt of all this.

But surely we could trust the government not to do anything ‘rash’?

Hardly. In an election year, with the Prime Minister struggling for legitimacy, we’ve got all the ingredients for some pretty wild policy thought-bubbles.

Expect them to go for headlines, not for sustainable reform.

Now this might sound like Jon’s got his cynical hat on again, but I’m not the only one worried about where this might be headed.

The RBA and Treasury have also taken the unprecedented steps of cautioning the government against going too hard.

The AFR was reporting that:

The Reserve Bank of Australia and Treasury have privately cautioned the Morrison government that any regulatory response to the financial services Royal Commission must be careful to avoid putting the brakes on lending to home buyers and business.

Treasury then doubled down on their private warnings, taking it public last week:

Treasury secretary Philip Gaetjens has warned that a key risk to Australia’s strong economy is banks cutting their lending too much in response to the Royal Commission into financial services and tougher credit rules imposed by the prudential regulator.

Amid complaints from small business and home buyers that they are finding it harder to attain finance, Mr Gaetjens said a tightening of credit conditions could constrain household consumption and business investment.

Now some people might say that this just proves that the RBA and Treasury are in the banks’ pockets.

But I actually think it says the opposite. Both institutions know full well the carnage that could be unleashed if the government went too hard now, just as the impacts of APRA restrictions are still being digested.

This is not a time for rash policy on the run. This is a time for cool heads.

Let’s hope the heads of Treasury and the RBA prevail.

JG

Are falling sales a bad omen for prices?

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Volumes are collapsing. Is it bad news?

I’ve seen a few people make a big deal about the recent fall in property sales.

We’re just not selling as many homes as we used to. That’s killing real estate agents. McGrath issued another profit warning last week. Ouch.

And the standard line in the business goes that when sales start falling, then prices follow.

But I’m not quite sure this is true. In fact, I wonder if the causation actually runs the other way.

CoreLogic gave us a good summary of the state of play last week:

The number of properties selling within a given year account for a very small portion of the overall market with the trend even lower over recent years; over the 12 months to July 2018, 4.6 per cent of national dwellings transacted, down from 5.3 per cent a year ago.

I think it’s always worth remembering how few homes are sold each year. In that sense, prices are a bit misleading.

Prices are simply the prices of what has sold, not of every house in the market. So when we say, prices in Sydney have fallen 6%, we’re not saying that every house is now worth 6% less. We’re just saying that the ones that sold this year, sold for 6% less than the ones that sold last year.

In that sense, prices actually aren’t a great guide to what your home is worth. They might be a guide for what you house could sell for right now, but that’s kind of a different thing.

Anyway, the point is, our key to understanding 100% of the market is based on what’s happening in just 5% of the market.

Anyway, back to the idea that falling volumes drive falling prices.

The more pronounced decline in turnover rates over the year to July is hardly a surprise given current market conditions, with dwelling values softening each month now for the past 12 months; coupled with the lowest levels of new stock being added to the market seen since 2012 over the past 6 months, as confidence wanes and homes take longer to sell.

Take a look at that chart there, comparing turnover in the capitals vs regional areas.

What’s interesting is that regional volumes are holding up. They’re pretty much just flat lining.

It’s a very different story to the capitals.

But note that the regionals have been out-performing the capitals since the middle of 2016.

Now if it was volumes that drove prices, you’d be expecting the regionals to be posting better results since about that time.

But they haven’t. Regional areas have only started outperforming in recent months, as prices have started to come off in our major markets.

So I think there are some more ‘structural’ forces at play.

And I personally wonder if a lot of it has to do with transaction costs. A lot of the costs involved in selling a property – whether its agent’s fees on the seller’s side, or stamp-duty on the buyer’s side – rise in proportion to price.

Stamp Duty in particular is now just crazy expensive.

So that’s got to be acting as a disincentive to sell.

It wouldn’t surprise me that as prices rise, there are naturally less transactions going on, because the price of transactions has going up.

(Economics 101).

The other thing I reckon is happening is that as prices fall, people are less inspired to sell.

That’s particularly true if you bought around the peak and don’t want to crystallise your losses, but it’s also true if you’re just selling for other reasons.

So say you’re not sure about selling, but then someone comes and offers you something $200K higher than the previous best price on your street.

“Fan-flipping-tastic”, you think. “Sold.”

Now imagine a scenario where you are thinking of selling, but the best offer you get is a full $200K less than what Bob down the road got 6 months ago.

“I’m not selling for that. I have my pride.”

The property market has a natural stabiliser. As prices fall, people simply become less willing to sell – for no real reason other than the fact that prices are lower.

(Think about it. An environment of falling prices is the perfect time to trade up. You sell, wait a bit, and then buy a better place for exactly what you just sold your old place for… less transaction costs! )

But this is just how the market is.

And one of the reasons why the property market is such a stable asset class.

So turnover is not pointing to price falls.

Price falls are pointing to falling volumes.

That keeps prices steady, though it does suck if you’re a real estate agent.

NO B.S. FRIDAY: Die with this regret… and you’ve won!

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I take a look at some of the guff written on regret. The results will surprise you.

Today, I’m going to give you a glimpse into your future life.

I’m going to show you what lies at the end of your road, and the one thing you will regret, when your number finally comes up.

… I mean, if you’re lucky. Most people die with a thousand regrets. But if you live your life well from this point on, follow my advice, you will take just one, beautiful regret to your grave.

And I know that because it is the same regret that I carry now.

So pay attention. I think this might be about to be the most important blog I’ve written.

(And oh, haven’t I written some doozies!)

Anyway, a lot has been written about regret. There was a story doing the rounds a few years ago about a nurse who worked at a retirement home, who did a study on the things that people regret on their death bed.

I don’t know why we focus so much on that death-bed moment. It’s just like any other really.

I mean, maybe I regret not playing professional ping pong in my twenties. That’s something I might regret on my deathbed. It’s definitely too late do anything about it then.

But it’s also too late to do anything about it now. The window has definitely closed on my professional ping pong career. That horse has well and truly bolted.

The really interesting questions should be what do people regret not doing last year or last month. Regrets fresh enough to actually do something about.

Anyway, contrived scenario aside, this nurse reckons that people always regret the stuff they didn’t do, rather than the stuff they did.

That sounds profound until you think about it.

The stuff we do – that just tends to dissolve into the history of our lives. It just becomes part of who we are.

So maybe you regret selling your Bitcoin in 2010. But then you meet your future wife at a ‘no-coiner’ support group, and so you think it was all for the best.

Life has a way of working out like that. Which is really to say, we have a natural tendency to make the most of things, get on with it, and celebrate what we have.

(There’s even cases of people who have lost limbs in motor accidents who say that they are glad it happened to them.)

The other part of it is that it is very easy to romanticise the road not travelled.

So you think back to that girl you knew when you were 17. You should have kissed her. Why didn’t you kiss her? You fool.

And then you imagine the life that might have been. You imagine yourself falling in love, madly and foreverly. You see yourselves in Paris, eating croissants by the river’s edge. You see yourselves as an old couple, in a motor-home, driving across the Nullarbor into the setting sun.

You see her crouched over your grave, her tears falling on to a single red rose, the sky darkening overhead.

Sigh. What could have been…

But of course this is the romantic version. You don’t imagine her, at 3a.m, feeding the baby, hair electrified, giving you death stares because “YOU ALWAYS WALK TOO LOUD!!” You don’t imagine her at 60, cocking her leg at the breakfast table and letting go with one of her signature farts. You don’t imagine her at 75, pawning all your stuff and moving in with Shane from the bowls club.

You don’t imagine any of this stuff, even though it’s just as likely.

We romanticise the lives we never lead.

And so of course we regret the things we never did. Those things were gateways to these romantic and fantastical lives – lives that are always going to be more magical, more colourful, more wonderful than the ones we are living now.

So of course we regret the stuff we never did.

To a point.

And this is where we start talking about the one regret that I have.

Because I’m someone who opened the door and had a look at what lay beyond all the gateways of regret.

I have lived a life of relative freedom. And I’ve done it all.

When I was a young man, I threw myself into soccer. I gave it everything. I had my tilt at professional sport, and the glory it promised. I did my best. I took my chance. I have no regrets.

As a young man, I also threw myself into the feminie like a box of Whitlam samplers. By the time I found my wife, I was certain there was no one else I wanted to be with. I had found the perfect one for me. And I haven’t regretted a single day of our marriage.

(I can’t vouch for her though – I think she’s already thinking about pawning my stuff).

And I also had my crack at business. I chose not to follow the road of the nine to five and strike out on my own. It was a gamble and it paid off. Some people die not knowing.

I know.

And with that success, I now have freedom that most people only dream about. I can travel the world. I can track down the relatives in Greece. I can take part in bizarre medicine ceremonies in the Congo. I can throw myself out of an airplane over the French Pyrenees.

I can do whatever I want.

And my bucket list is completely cleared out.

So, all good then, hey? No room for regrets right? I’ll die a happy and regret-less man, quietly smiling into my last glass of whiskey..?

Not quite.

Because this is the thing I’ve learnt about having opened every door, having tasted every fruit, having ticked every box I could find:

None of it matters.

Having done everything on my bucket list, I can say that the amount of happiness I drew from each item on that list, is actually kind of minimal.

I mean sky-diving was awesome. It totally was. But knowing what I know now, would I go back to a younger version of myself and say, “You totally have to do this before you die.”

Nah.

And the same goes for everything on there. It was all awesome. It was all good fun. But was any of it “must do before you die” worthy?

Not really.

I mean, I do enjoy knowing that I have done everything I ever wanted to. That’s a nice feeling of completion – a feeling of satisfaction. That’s nice.

But that feeling of completion could have come with any bucket list really. It could have been a shopping list. The individual experiences just didn’t matter.

More and more, my adventuring has brought home that simple truth – happiness is an inside job.

Doing everything on the most epic bucket list in the world won’t make you happy – not if you’re not already primed for happiness from the inside out.

And this is what I regret.

I regret the hunger I brought to everything when I was younger.

I regret those days where I always wanted more. Where I had a great job, but I wanted a better job. Where I had a great girlfriend but I wanted a better girlfriend. Where I had great friends but I wanted better friends.

I brought a hunger to every thing I did, and that hunger always kept my eyes on the horizon, on the hunt for bigger, and better, and more exciting.

And in doing so, I missed out on a lot of life. The life that happens in the moment. The happiness that comes when you are just present to what is, when you are just grateful for what is.

In hindsight, I can see that I lived through countless blessings, through a charmed life full of wonders and beauty, and I was a misery guts for most of it.

My hunger kept me blinded to what I actually had.

And so this is what I regret.

I regret that I spent so many years as a slave to this hunger. I regret that I let so many moments for potential ecstasy and bliss pass me by, simply because I thought bliss was always over the next hill.

And I regret that it took me so long to figure it out. That the energy and the passion and the hormone-driven stamina of youth was wasted on someone who just couldn’t see how good he had it.

This is what I regret. And I’ll carry this regret with me to the day I die.

Funny old thing, life.

And I hope that this regret is the only regret that plagues you on your death bed too. I hope that from this day on, you heed this wisdom, and become present to and grateful for the wonderful gifts you have already.

But I don’t really expect you to.

I mean, I wouldn’t have. I couldn’t have been told. I wouldn’t have listened.

I had to see for myself. I had to taste every fruit in the garden before I could know that fruit was not the key to happiness. No amount of grey-beard wisdom would have helped.

And so if you won’t take my advice, then I wish that this journey will find you too. That you will have the freedom and the resources to chase down every desire, live every dream –tick everything off your own epic bucket list. Leave no stone unturned until you are convinced that happiness is nowhere to be ‘found’.

Perhaps it is the only way.

But however you find it, I hope this one beautiful regret becomes yours too:

I only wish that I had found my freedom sooner.

(… he whispers to the nurse, as she pours him a final whiskey.)

JG

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

Morrison wants to do what?? He’s dreaming.

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Political pipe dreams, but they could actually drive up unemployment in the bush.

With all eyes on Scott Morrison, The Australian reckons it knows what one of his first big plays will be – populating the bush.

The Morrison government is due to consider a plan that would require some new immigrants to settle for up to five years outside Sydney or Melbourne, as part of a yet-to-be-released landmark population policy to ease congestion in the two largest capital cities.

The Australian understands a decision on a time period for mandatory regional settlement — as part of a new migration program — had been due to go to the Turnbull cabinet last week. It has yet to be put to the new cabinet under Scott Morrison.

Two government sources have confirmed that a period of regional settlement, of up to five years, was a key plank of the population package put before the government. It came with a requirement to locate in regional areas or capital cities other than Sydney or Melbourne, where the rate of ­migrant settlement has reached almost 90 per cent of new arrivals.

Hmmm. Ok. So is it time to load up on regional property?

I think the idea of decentralising Australia – shifting the focus away from our big cities and spreading it all around a bit, is generally a great idea.

But it’s going to take some fairly coordinated action across state, federal and even local government lines.

Simply demanding that new migrants spend time in the bush is not going to cut it.

I mean, how do you even police that? Electronic tagging? Zapper collars?

But even assuming there was some feasibly and morally acceptable way to enforce it, sending migrants out to the bush is putting the cart before the horse.

I’m seeing it first hand in Greece right now. Greece has a population problem.

The Greek crisis drove hundreds of thousands of Greece’s best and brightest off-shore, in search of work and a better future.

Pretty much the only good thing that came from integration with Europe, in my mind, was the ability to relocate around Europe.

And so those with transportable skills, those who spoke other languages, just left.

And that might have been temporary if the crisis had been temporary. But after ten years, people started putting down roots. They started having families. They joined school committees.

So it’s going to take a lot to entice these people back. And with unemployment still running at 19%, we’re not there yet. Not by a long way.

There just isn’t the jobs.

So this is the simple economic truth of population flows. People go where the jobs are.

And so this decentralisation pipe-dream seems to be missing a key element. Where are the jobs?

What’s the point of leaving migrants stranded in the bush, stuck on unemployment benefits for 5 years?

Like, the whole drive of our immigration policy is to bring people who can make a contribution.

Why select on skills and then leave them on benefits in the bush, doing nothing?

And rural towns might like the idea now, but what happens when a wave of cheap migrant labour washes up on their shores?

If there’s a scarcity of good-paying jobs already, more labour simply drives down wages further.

And we know what’s at the end of the whole ‘migrants took my jobs’ meme.

It’s a disaster waiting to happen.

So I know this whole decentralisation thing is a political fad that gets resurrected time and time again, but it’s just sounds like a dream to me.

And I’ll take it seriously when politicians start worrying about regional economies first, and leave the population question to later.

As per the natural economic order of things.

I freaked out, then I saw this!!!

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Could the Turkish crisis derail the whole global economy? This one chart says no.

Flying back in to Greece, I’m thinking, “Great. Wouldn’t you know it. The wheels are coming off in Turkey, the whole region is about to go up in flames, all before I’ve even had my first glass of ouzo.”

If you failed geography, Turkey and Greece are neighbours. And Turkey is going down in a flaming ball of debt and bad life choices.

The world is panicking about it. That’s the thing about the global economy these days. It’s all inter-connected. It’s like a giant Jenga set. Some pieces are more important than others, but you never know which one is going to bring the whole tower tumbling down on top of you.

So could it be Turkey?

I was plugging in to the global sense of panic. I was losing sleep. But then I found one chart that put everything back in perspective.

But let’s back up a bit first.

In case you missed it, Turkey’s currency, the Lira, is going to crap. It’s dropped off a cliff and is now down a gut-wrenching 45% since the start of the year.

To put that in perspective, the Argentinian Peso – that perma-cluster-fuk of a currency is only down 38%, so things are bad.

Now, a collapsing currency isn’t necessarily bad news. It makes your exports cheaper and when the Aussie dollar falls, we actually get an economic boost most of the time.

The exception though is when you’ve borrowed lots of money and it’s denominated in other currencies.

So imagine I owed someone US$100. Right now that means I owe them about AUD$130. But then let’s say the Aussie dollar falls off a cliff, down to about US50c.

I still owe them US$100, but suddenly that’s now worth AUD$200. So my debts have ballooned, even though nothing has changed except the exchange rate.

And this is what is happening in Turkey.

This chart here is a little hard to make out, but it shows foreign-currency denominated debt as a percent of GDP. Turkey is streaks ahead at around 70% of GDP. Ouch.

What’s worse, they don’t have much foreign currency reserves to tide them over or prop up the currency. It’s worse than in Argentina.

On top of all that, you’ve then got a political situation that doesn’t inspire much confidence. President Recep Erdogan reckons it’s all a ‘foreign plot’ to destabilise Turkey. There may be some truth to it, since it was Trump’s tariffs that sparked the whole mess for Turkey. But still, it doesn’t sound like a politician ready to take responsibility for the mess he’s in.

(I know! How unusual.)

And he does have to front up to some of the blame. His economic agenda has been to pump heaps of money into real estate development, mostly funded by off-shore borrowing. He has also eroded the integrity of Turkey’s economic institutions. After the last election, he appointed his son-in-law as the head of the finance ministry, and took personal responsibility for appointing the central bank’s governing council.

So Turkey is in a mess and nobody thinks they can get out of it.

What a disaster!

And so as Turkey goes over a cliff, everyone is wondering where the next domino to fall will be. Italy, Spain, Germany, Europe???

This could be the ruin of the global economy.

I was certainly working myself in to a state over it. I could barely get through my second plate of prawns.

But then I saw this chart.

This tracks foreign bank exposure to Turkish debt.

So the story here is that it’s Spanish banks that are going to bare the brunt of it. Most other banks are fine.

Spain is alarming. That charts saying that 25% of Spanish bank capital is exposed to Turkey, which does seem staggering.

But then France and Italy have little more than 5%, and when you get to the US, it’s sweet FA.

So most nations can roll with it without major dramas.

Spain however, does seem to be in trouble.

But I’m also relaxed about that too. Spain has been in trouble for a while. There’s not going to be any surprises there. All of Spain’s creditors knew they were taking on risk, and so should (I hope!) have been planning accordingly.

So the worse case scenario is that Turkey goes up in flames, Spain goes into recession, and the rest of the world muddles on.

The best case scenario is that Turkey somehow fudges its way through.

And the most likely scenario is somewhere in between.

So, I think we can all breathe a little easier.

Maybe even order another side of prawns.

US declares war on China. For reals?

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I’m not sure the US is mucking around with their war on China

The US has started a war with China.

But the question is, what kind of war?

Is it a trade war, where the US is simply trying to rebalance the global flow of trade (a little more in its favour)?

Or is it an economic war, where the US aims to give the Chinese economy a good thump on the head?

So far, the official story is that it’s a trade war, and the US is just protesting China’s unfair trade advantages.

But more and more it looks like an economic war, designed to squash the ambitions of a rival super-power.

That’s what Steve Bannon reckons. It’s also what China expert Richard Duncan reckons:

Bangkok-based Duncan believes the US$50 billion of Chinese products designated for 25 per cent tariffs by the Trump administration – in addition to a proposed 10 per cent tariff on an additional US$200 billion in Chinese goods – may represent the first steps in a policy shift by Washington that goes far beyond what many observers expect.

“I am becoming concerned that they really do intend to put up trade tariffs on a very large scale against China and that perhaps there’s more to this strategy than just balancing trade. They may be intent on stopping China’s economic growth altogether, now that China has become so large they are becoming not only an economic competitor, but potentially a military threat to US global dominance. If that’s the case, this could be a turning point in history,” Duncan said in a new South China Morning Post business podcast.

While it is too early to say how the trade talks between the two sides will play out, one concern is that escalating tariffs, beginning with the US$34 billion of Chinese products which went into effect on July 6, are about to become the norm, rather than the exception.

Another is whether the trade policies are really designed to reverse the deindustrialisation of the US economy – a theme made prominent during Donald Trump’s presidential campaign.

“Over the last 30 years the rapid economic rise of China has really transformed the world, but if the US starts putting tariffs on US$200 billion and US$500 billion of Chinese exports, then China’s economy could go into a very serious crisis,” Duncan said.

“The impact would be global and we would see a drop in metal prices and that would be a blow to metal and mining companies. Also as commodity prices fell, the economies of the commodity-producing economies would go into recession,” he said.

This isn’t just a theoretical exercise – a curiosity of modern history. This will have serious impact on the Australian economy.

China has been central to Australia’s economic miracle.

Just as the rest of the world took a hammering thanks to the GFC, and rising China insulated Australia from the worst of it.

The price though was a growing economic reliance on China. As a commodity exporter, we have let China become far and away our biggest customer.

And I’m not just talking about iron ore. Take a look at wool for example:

So if the US decides to launch an economic war on China, and they succeed in crashing the Chinese economy – which might not be all that hard given China’s reliance on exports and some pretty mind-blowing debt numbers – then Australia could find itself in the fall-out zone.

I think we all just assumed that the trend towards the global free-flow of goods and trade was a one way street. We bet the house on a perpetually strong China.

We’re not ready for things to be reversing.

I’m not sure really how to play this. The US’s intent is still not clear, and then a lot still depends on how well they execute, and how China responds.

But it’s looming as a risk for Australia.

Maybe it calls for more of a hedge in defensive assets.

In that sense, I still like property. The high-rise sector could be shaky if all those Chinese developers go bust.

But if an economic war unleashes a global recession, then time and again, property has proved to be a solid preserver of value. I wouldn’t think this time would be any different.

We might even see more foreign money from other nations coming to Australia looking for a safe-haven.

But this is something to watch out for. I’ll be watching the Chinese economy a little more closely from here on.