Thursday, 30 June 2022 — Albert Park

By Catherine Cashmore Editor, The Daily Reckoning Australia

[5 min read]

Dear Reader,

The MSM is full of stories of desperate families unable to secure rental accommodation.

Take this one from QLD:

‘In March, single mum-of-three Kaylie Aitken told news.com.au she had been told the lease for her townhouse in Griffin, Queensland, would end with six weeks notice.

‘Two weeks later, she had racked up more than 20 rejected rental applications, and was making emergency plans to cram her children into her mother’s granny flat or stay with friends…

‘…last month, a young family documented their experience living in a tent with a baby and a toddler after their landlord decided to sell their home, and finding they had been priced out of the regional town they lived in.’

The thing is, what seems to be a shortage, with pressure coming from the property lobby to ‘increase supply now’, ignores one vital fact…

We have plenty of supply.

There are tens of thousands of properties sitting vacant.

Just not for sale or rent.

Turns out QLD authorities have been following our lead over at Prosper Australia and using water data as a proxy to identify these vacant dwellings.  

A whopping 19,500 homes across lower South East Queensland have water connected, but usage is so low that it seems no one’s been living there for months!

Additionally, the latest Census 2021 data shows that 9.6% of Australian properties are currently vacant.

That’s 1,043,776 homes!

We’ve been conducting studies into long-term vacant dwellings using water data as a proxy for more than 10 years at Prosper Australia. 

Having penned a few of the ‘Speculative Vacancy’ reports, I can tell you that historically long-term vacancies will sit hidden from view until a crisis hits.

The number of ‘speculative vacancies’ rises in the bull phases of the property cycle.   

This is when capital gains are accelerating, and yields are being squashed as a consequence.

Owners may have a plethora of reasons to hold their homes vacant.

But whilst prices are rising, let’s face it, there’s an extra incentive to chase capital gains over rental yields and avoid dealing with long-term tenancy issues and potentially expensive changes in state legislation. 

This is why we call them speculative vacancies.

They’re being held in lieu of speculative gains.

The outcome, however, doesn’t change.

When we get to the end of the cycle, and owners need to bail for financial reasons, the MSM story will change from an acute shortage of undersupply to horrors of an oversupply.

The rental crisis could get much worse too.

Temporary visa holders declined by more than 750,000 through the pandemic.

Down from 2.41 million at the end of 2019 to 1.64 million by the third quarter of 2021.

The latest data shows a strong rebound of a quarter of million by May 2022:

No doubt a significant proportion will be looking for rental accommodation during their stay.

Authorities are going to be under increasing pressure to implement reforms. 

Note that authorities in the worse affected states with rocketing rents may implement a vacancy tax.

Victoria did this just a few years ago.

However, it’s notoriously difficult to regulate, and relies predominately on self-reporting.

Notably, it hasn’t made a substantial impact to the vacancy trends as Prosper Australia’s latest ‘Speculative Vacancy’ report proves.

To shift the market from a speculative one to one that works for need, not greed, requires sweeping tax reform. 

Tinkering around the edges with vacancy taxes, first homebuyer grants, stamp duty to land tax changes, and so forth — cannot shift things substantially.

In another 10 years, journos will still be writing about the same old woes of housing unaffordability.

Latest census data shows the number of people owning their homes outright has dropped from 41.6% in 1996 to 31% in 2021.

So, if you’re not renting from a private landlord, you’re likely renting from the bank.

Still, as renegade economist Michael Hudson quips,‘rent that used to be paid to landlords is now paid to the banks as interest’.

This is why we have a boom/bust property cycle, and voters that have skin in the game don’t want to do anything to stop the gravy train.

It reminds me of a comment by Former Prime Minister Tony Abbott in 2015 (when the Sydney market rocketed some 15%-plus upwards in a year).

‘As someone who, along with the bank, owns a house in Sydney I do hope our housing prices are increasing…

‘I want housing to be affordable but nevertheless, I also want house prices to be modestly increasing.’

Indeed, there is nothing new under the Sun.

Sincerely,

Catherine Cashmore,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

You can protect your wealth from inflation in many ways — with land, art, housing, business investments, collectibles. But gold is the most ‘liquid’. It’s bought and sold easily. And you don’t have to become an expert on anything…or pay attention to it. It’s like a pet dog who never needs to be fed or taken for a walk.  

Like a good watchdog, gold protects against thieves and natural calamities. It drives off consumer price inflation and barks when it sees your house on fire. Over the last year, consumer prices have gone up about 8%, some much more than that. And — measured by the Dow — about 10% of stock values have gone up in smoke. Gold has had its good and bad days but has generally kept investors from losing money.    

By long tradition, now almost an instinct, people buy gold when they fear that the paper currencies may not be as stable as they had thought. And by fairly recent innovation, they buy ‘paper gold’ because it is a lot easier than buying the real stuff.

One of the key qualities of gold, however, is that it’s very hard to add to the supply. In this regard, it is the very opposite of cryptocurrencies. You can create quadrillions of new cryptos before teatime…at minimal cost. But every new ounce of gold takes time and money. It has to be found, mined, minted, hauled, stored, and protected. It requires engineers, capital, machines, and know-how; it can’t be done by some skinny kid in his mum’s basement.  

Sleeping Beauty

In the hundred years before the creation of the Fed, for example, prices in the US went up and down…but came to rest in 1913 about where they had been in 1813. Nobody lost money by keeping his money in gold. (By contrast, the saver who put a dollar bill in his safe in 1913 now has only 3 cents worth of its former purchasing power.)

Lately, however, many commentators have complained that gold is taking a snooze. Consumer price inflation has become headline news. But gold stays in the doghouse, unconcerned, almost nonchalant in the face of the worst inflation in 41 years. Why so?

Part of the answer may be simply that gold had already anticipated today’s inflation. From December 2015 and September 2020, the gold price almost doubled — running far ahead of price increases. By this logic, gold won’t have to go up for years.

Another part of the answer may be that the ‘gold supply’ is not as tight as we think. The supply of ‘paper gold’ — like paper money — is boundless.  

Paper gold glitters, but it is not gold. Gold certificates, pool accounts, gold futures accounts, and ETFs — are ways to gain ‘exposure’ to the price of gold without the muss and fuss of owning lumps of heavy metal. No need to bite into the coins to see if they are real. No need to go to the coin dealer…no need to put the coins in a bank lockbox or bury them in the backyard.  

Paper gold is much easier to deal with than real gold, so why not? Paper gold is ‘backed’ by real gold. It’s linked — by contract — to solid metal, Au, atomic number 79. What could go wrong?  

What could go wrong? What always goes wrong! Iron links, binding contracts, unbreakable promises — all give way, sooner or later. Were it not, the divorce courts would be empty, contract lawyers would be out of work, and politics would be as honest as prostitution.      

Gold…10 times

There are said to be 10 times as many ounces of gold represented in ‘paper gold’ contracts than actually exist in above-ground metal. Investors didn’t have to buy gold. They could buy paper. And since the market could add paper easily, the price of gold didn’t rise.

Investors don’t really want gold anyway. They just want the stability and security of the yellow metal. And in normal circumstances, some buy and some sell. Prices go up and down. Paper gold purveyors can make their margins, take their commissions, and honour their obligations. All is well.

But what about when markets begin to go haywire, and investors want their money? As the price of gold shoots up, where do the paper gold companies get the cash to settle their claims? In other words, what happens when there is a ‘run’ on paper gold?

Of course, paper gold is ‘stable’. It’s backed by more paper! Contracts, insurance, reserves. And it all works beautifully…until it doesn’t work. Links are broken. Promises are forgotten. Money disappears.  

‘So, sue me!’ say the promoters.

Paper gold is a good way to bet on the price of gold. It is not a good way to ‘hold’ wealth.

The way you make money over the long haul is by buying low and selling high (we’re not giving away any Wall Street secrets here). And the way you do that is by getting out of stocks when they become overpriced…and waiting (in gold) for them to become bargains again. 

But don’t expect paper gold to save you in a real crisis. When the going gets tough, physical, tangible gold is the only real gold. Paper is just paper.

Regards,

Bill Bonner,
For The Daily Reckoning Australia