In my post back in April, Perth 2007 – More Brass Than Class, I bemoaned some of the changes this mining-driven boom has brought about in Perth – primarily, the chasm that has opened up between the moneyed and beneficiaries of the boom and the sizeable minority who have been left behind.
At the time of my post, the local media was still gleefully serving up daily stories of wildly escalating real estate prices, as they had been for weeks, months, years. Indeed, real estate and the whacking great pay-packets to be had “up north” had been the default topic of conversation among Perthites for a long, tedious time. Newspapers, TV current affairs programs and yuppie-infested coffee strips were abuzz with upbeat money-talk.
There was an air of self-congratulation about it all, a hubris that had us elevated not only to the most expensive city in the country, but the most glamorous. To which I said and say, bullshit. Try piss-elegant for a better fit.
But Perth’s standing as a city is not my concern here. That’s a debate that has become suddenly fashionable, and one that is being more than capably led by bona fide experts like Charles Landry (notably, imported).
My focus is on the human toll this boom is extracting. At the time of my post back in April, there was a grudging awareness in the press of a flipside to the boom: I referred to an article deep inside a Saturday edition of The West Australian on the privations of a student who was camping with friends after rising rents had forced him out of formerly cheap accommodation.
God knows how the poor bloke and others like him are coping now. Quite simply, there is NO cheap rental accommodation left in Perth – cheap, as in affordable for students and people battling on sub-breadline incomes.
The real estate market has at last gone off the boil, but the damage has been done. Even the most modest of houses in an outlying suburb is now way beyond the reach of anyone on an average income with less than a couple of hundred thousand in deposit savings who does not already own a home. That’s a lot of people at the mercy of the rental market, which has been heating up for some time, and is now bubbling and spitting with volcanic fury.
Rents have pushed to budget-snapping limits, as recent, entirely predictable interest rate rises start to bite and investors chase a half-decent yield from the capital – much of it highly leveraged – that they pumped into Perth’s stampeding real estate bull market on the flawed assumption that spectacular property asset growth was virtually guaranteed into the distant future.
Now, not content with bleeding their tenants dry, whinging investors are petitioning the State Government to scrap stamp duty. To which I say piss off, you greedy pricks. You knew the rules when you entered the game. If you’ve over-extended yourselves in your rush to grab an outsized slice of the wealth pie, don’t expect the Government to bend to accommodate your future investment purchases. If there is to be any stamp duty relief, it should be confined to genuine home buyers.
Let me pause for breath a moment to point out that I’m directing this anti-investor rant not at the people who have sensibly invested in a property or two to secure their financial future, but at the disciples of wealth gurus like Craig Turnbull who have three, five, ten houses, and who are aiming for twenty, thirty, a hundred.
These are people whose greed knows no limits, and whose rapacious appetite for building wealth far greater than their foreseeable needs has been largely responsible (along with the big property investment syndicates) for stoking the fires of Perth’s real estate boom. In so doing, they have burnt down the dreams of those who hoped only for a home of their own at some time in the future when they had worked long enough and saved hard enough to get a start. How about this, Mr and Ms Multiple Investor: give your tenants a break and sell off some of your properties if it’s getting too tight for you. Realise some of those vast capital gains we keep hearing about.
Fair dinkum – spare a thought for the tenants, if you’re not one. While for some, renting is a lifestyle decision, I’d venture that most do not any longer have a choice between renting and buying their own home. Perth’s real estate boom has denied them that.
As we all keep hearing, the boom has pushed Perth house prices to Sydney levels – utterly unthinkable only a couple of years ago – as well as exerting upward pressure on general living costs. Fine for those who are reaping the benefits. But for those who are not smacking their lips as they open bulging pay packets courtesy of BHP, or whooping as they watch their resources-heavy share portfolios multiplying before their glinting eyes, times are harder than they’ve ever been in Perth. There’s a tension in that inequity that has to give somehow, some time.
As you beneficiaries of the boom are surging ahead, the rest of us are earning no more than we were before the mining madness started; incomes have not gone up across the board. We’re standing still…which means, in effect, going backwards. And no one is being hit harder than the hapless renter on low or even ordinary wages. Shelter and food are fundamental requirements that must be paid for, whatever your income or financial circumstances. And as the economy hyper-extends, and living costs spiral skyward in harmony, basic survival requirements are taking an alarming proportion of the pay packets of the boom’s forgotten victims.
At last, possibly sobered a little by the severe mauling the stock market has received in recent weeks – an overdue reminder that markets can fall as well as rise dramatically, and abruptly at that – an article from The Australian appeared on news.com.au on August 14 entitled Boom Sending Many Bust, acknowledging the pain that low to middle income earners are feeling in response to “rocketing” rent, food and fuel prices.
While renters are suffering through no fault of their own, people struggling to meet mortgage payments on modest family homes are also doing it tougher than ever before. Hardest hit are those who took on commitments they could not afford in a state of panic, leaping on board a tearaway real estate market before it disappeared over the horizon of their budgetary possibilities.
Many may end up paying dearly for acting in haste, but no one forced them to dive in at the deep end without considering their capacity for staying afloat. I am not one who supports the notion of a nanny government taking on responsibility for the plight of errant citizens and baling them out. We all have to live by our decisions, and have only ourselves to blame when we make the wrong ones. Or do we?
Are the banks and other lending institutions that lowered the borrowing bar to entice the unwary and naïve to take out loans subsequently rendered unserviceable by inevitable rate rises and increasing living costs at least partly culpable? Whatever the morality of the situation, the sub-prime meltdown in the States translates to an emphatic YES from the financial markets. As is their cyclical wont, the buzzards of greed are coming home to roost.
The tanking ASX has dispelled fond notions that the Chinese powerhouse our iron ore is stoking has bulletproofed us against global shakeouts. Resources stocks are being meted out some particularly savage treatment, skimming more than cream off the top of those previously flourishing portfolios and managed funds. Is this merely the retracement we had to have, or is a full-blown correction underway?
Who knows? I know nothing of economics (given their track record in economic weather forecasting, neither do the economists, it seems). I do know, though, that there is no historical precedent for any boom of the magnitude we have been experiencing going on unchecked for more than a few years. Bubbles burst and there is plenty of historical evidence supporting the truism “the bigger the boom, the bigger the bang”.
It seems to me that the current situation in Perth/WA is unsustainable. When semi-skilled workers in the mining industry are making bigger bucks than doctors and lawyers (well, doctors anyway), something ain’t right! When boom-riders are buying houses exceeding their wildest expectations and accumulating multiple investment properties into the bargain while the rest do it tougher than ever before and watch on in despair as their Great Australian Dream turns into a nightmare without end, something’s outta whack!
Economic shakeouts occur because things are out of balance – that is, values are inflated, or credit risks too high. Both apply in Perth, in my view.
But forget the mysterious science of economics. Here’s a simpler perspective. The situation is surely unsustainable where hundreds of thousands in a city of Perth’s relatively small size are struggling to pay the rent and meet basic living costs on ordinary wages. If this proposal is incorrect, we will soon reach a point at which low to middle income earners who have lived in Perth all their lives will be forced to move elsewhere simply because their city is no longer affordable, supplanted by new-arrivals thriving off the boom they came here to cash in on. That’s just wrong.
I don’t think it will happen. Perth’s real estate prices are way over-valued, in my opinion. But my opinion doesn’t matter. Market forces determine value, and are immune to theoretical argument, informed or otherwise. The stock market carnage that is taking place at the moment is, in effect, merely an adjusting of sentiment-driven, unrealistic stock prices to true value. The same can and will happen to the real estate market if prices have outstripped true value – and the adjustment process may well be as brutal, or more so.
If China’s demand for resources was to falter even, as could easily occur if the current stock market malaise develops into anything more serious, and almost certainly would occur if the Wall Street-led wobbles turn out to be a leading indicator of a global recessionary phase, the amplified effect on the mining-dependent WA economy could impose a reality check that would bang a lot of the newly affluent back on their well-padded arses with one hell of a jolt.
If that results in a mass exodus from investment properties and a restoration of house values to sane levels, with attendant rent relief for those who are suffering most from the boom, here’s to the bust.