Popping fears of a property bubble

As the mining boom fades, Australia needs a drastic rethink about how to create jobs and develop the sectors that have been crippled by the high dollar.

As the mining boom begins to fade, Australia is returning to "normal” and will require its new jobs to come from Sydney, Melbourne and Brisbane plus their surrounding areas.

We will now require a total new way of thinking by bankers, including the Reserve Bank, the private sector and of course governments. The mining jobs boom in WA and Queensland peaks next year and then will rapidly run down with the decline boosted by more coal mine closures.

No matter who wins the next election, Canberra, which has basked in high spending as a result the bonanza revenues from mining will also go into decline in line with lower federal tax revenues.

Although Gina Rinehart will try to develop Roy Hill, Australia is no longer competitive in new mine development so most new mine developments will have to wait for much better prices and for all states to embrace the Baillieu industrial relations rules which cut construction costs by about 25 per cent. (Grollo is leading the IR battle, September 5)

So what do we need to do? First off all we need to take the pressure off the Australian dollar, which is crippling four of our main capital city employment areas – exports education, tourism, manufacturing and research. And the higher dollar is also helping to send services employment offshore.

In addition, as I will explain below, it closely linked to the housing problem.

Overseas investors chasing our high yields and the massive money still coming in to complete LNG developments are propping up the dollar, which normally would have fallen with lower commodity prices. As a result we have to lower interest rates further.

The money traders are predicting a another half to three quarters of a per cent fall during the next six months. Over the weekend I had a yarn with to foreign currency trader, Chris Tedder from Forex.com. He believes such an interest rate fall would lower the dollar but he doubts whether the Reserve Bank will do it because they fear that further big interest rate cuts would create a housing bubble.

Over the weekend I was also exchanging views with Australia’s largest apartment builder Harry Triguboff who says that, while the rate cuts so far have boosted dwelling prices in certain areas of Sydney and Melbourne, in Queensland and the Central Coast they are still down by approximately 20 per cent.

"Think of these areas. They must rise. They need to rise desperately. We cannot have a country where only 20 per cent of the properties go up and 60 per cent go down while 20 per cent are static."

"The interest rates have a lot further to go down without any fear of a bubble”.

Triguboff points out in the UK rates have been reduced to low levels but there has been no bubble because bank lending policies have been cautious.

So here we have a crazy situation where we desperately need to kindle investment in export education, tourism, manufacturing and research plus we need a lot more houses to be built but we are holding it all back because we are frightened of a housing price bubble.

If banks increased their deposit requirements we could lower rates and there would be no housing bubble. Alternatively we could curb negative gearing.

I am not going to solve the problem today but the end of the mining boom and the mothballing of $200 billion to $300 billion in mining investment means different ways of thinking are required. (Australia to world: "Do not invest here", July 31).

We will need more than the Baillieu building industry industrial relations changes. We may enter an area where independent contracting is the new way to boost employment and get around the crippling rules in conventional employment.

And as Alan Kohler has been writing, the level of Australian Bank profits is going to be put on the table.

Meanwhile housing is one of the fastest ways to create employment in the major capitals and regional centres where the people are.

The rate cuts so far have kindled some buying of existing houses and that will spread to new houses if rates fall further. It’s not hard to stop increased new home buying from creating a bubble.