Australia; Housing bubbles and declining business investment

By Colin Twiggs
September 10, 2017 9:00 p.m. EDT (11:00 a.m. AEST)

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Australian Housing

The Australian housing bubble is alive and kicking, with house prices growing at close to 10% per year.

Loan approvals are climbing, especially for owner-occupiers. Fueled by record low interest rates.

Causing household debt to soar relative to disposable income.

Business Investment

Nominal GDP growth of 6.34% for the 2017 FY is a rough measure of the average return on capital investment.

With a mean of close to 5% over the last two decades, it is little wonder that business investment is falling. Not only in mining-related engineering but in machinery and equipment.

Capital Misallocation

More capital is being allocated to housing than to business investment.

Returns on housing are largely speculative, premised on further house price growth, and do little to boost GDP growth and productivity.

The result of soaring house prices and household debt is therefore lower business investment and lower GDP and wages growth.

You don't have to be the sharpest tool in the shed to recognize that soaring household debt and shrinking wage growth is likely to end badly.

In the short run, the market is a voting machine
but in the long run it is a weighing machine.

~ Benjamin Graham: Security Analysis (1934)