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Monday, November 19, 2012

Post-construction boom plan?

There is a lot of talk recently about RBA's new great idea of replacing the mining boom with a construction boom. It is quite possible that could work, and we continue growth by shifting ex-mining investments into housing construction. This is not new idea. It was very "successfully" implemented in quite a few places around the world recently. Irish and US governments successfully replaced IT boom of late 90s with period of steady growth driven by construction boom. Chinese government partially did the same thing after their export boom ended. Historically, it seems it's quite easy to succeed with this plan.

BUT, there is one much more important question that nobody seems to be asking  in Australia: even if the great idea of construction boom replacing mining succeeds, what will replace construction boom at its end in three or five years? 

If everything goes as planed, in just 5 years we will have million more homes - half of them empty (around half a million more new homes than new households), we will have around half a trillion more debt (half a trillion less invested in productive business and infrastructure) Maybe we can continue doing the same for 5 more years after. By than we should have million more empty homes and trillion more in debt.

BUT, what will happen after we take more debt and misallocate it into more empty houses? What is the great idea promises us after?

I'm scare even to think about this.
I hope our government's great ideas fails quickly. I hope for that not because I think we will be fine if it fails (we will not), but because I'm sure in 5 years we will be much better than if they succeed. For majority of Australians (especially our kids) going into few years long recession in 2013 is much better option than going into decade long deep depression in 2018.

I hope, we learned something from other's mistakes.


  1. The idea is probably to turn on the immigration tap as hard as it will go, in order to have buyers for all these new properties. Then there are the foreign investors - they can buy as many properties as they like here without restriction.

    One thing is for sure - the government is not planning this new construction boom to make housing any more affordable.

  2. You are probably right. Our government will try to push population boom together with construction boom but that will just make things worse after the burst. Spanish, Irish and USA governments tried the same and miserably failed. Ireland and Spain had the record population growth (1.7%pa and 2.4%pa) at the same moment when bubble popped. Even more extreme examples could be found in boom american states Nevada (3.5%pa growth in 2007) and Arizona (3.6%pa in 2006).

    These countries also removed (or never had any) restrictions on foreign property investments. BUT, it didn't work. How many foreign fools are willing to pay these exuberant prices. This is even more true now, when other bubbles popped and prices collapsed. Why would large number of foreign people buy an expensive and low rental yield property in Australia when instead they can buy two or three properties of the same quality in USA, Spain or Ireland.

    hint:Australia is not much (if anything) closer to China than US or Europe.