It’s Monday morning, your editor has had a relaxing weekend, and we’re stumped for what to write to you about today.

If we were a proper writer we could claim to have writer’s block. As we’re not a ‘proper’ writer we’ll just have to say that this morning we’re ignorant. But maybe that’s the case every morning. Who knows?

Last week our old pal, Christopher Joye attempted to write a rebuttal to those who had criticised his previous article.

Not surprisingly – as always seems to be the case with Joye – he’s just ended up spinning the argument more than Shane Warne at the MCG.

For instance:

‘Finally, he [Kris Sayce] alleged yesterday that I had said that “mortgage repayments comprise 10% of household disposable income.” This is once again false.

‘What I actually said was that total household interest repayments as a share of disposable income were around 10 per cent, which is exactly what they were 20 years ago. This is absolutely accurate.’

I don’t know about you, but as we see it, it’s the equivalent of saying, “I said TOM-AH-TO, not TOM-AY-TO!”

The fact is, Joye was attempting to claim that buyers were only paying 10% of disposable income in interest. While that’s true for a lot of people, it certainly isn’t reflective of the shape of the property market over the last few years.

And then in the weekend edition of the Australian Financial Review, he responds to the accusation that housing isn’t productive:

“The reason I find this falsehood frustrating is that it is often then used as one explanation to advance poor policy… in economics, housing is as productive as any other asset, such as commercial property. Housing services – shelter – are a condition precedent to a viable economy.”

Again, more spinning of the facts.

As we’ve noted before, just saying that a house is as productive as a commercial property is only a half truth. Because it implies that all commercial property is productive too. Clearly that isn’t always the case.

A 3,000 acre commercial property with a five square metre shoe ‘factory’ producing one pair of shoes each day is hardly productive use of the property. By the same token a 3,000 acre factory on a 3,000 acre property that also only produced one pair of shoes each day wouldn’t be a productive use of the facilities.

It’s the same with housing. At a certain point, a home moves from being a ‘productive’ shelter to being a consumption item. We’re not saying that everyone should live in dormitory style housing, but what we are saying is that a 60-square home housing two people is not more productive than a 12-square home housing two people.

In fact it’s less productive because it has consumed more resources yet the people living in the home may not necessarily be five times more productive for the economy.

Joye’s argument is to make the assumption that commercial property is productive, therefore so is residential property. It’s a typical tactic that Joye has used before, make a statement that many believe to be true (commercial property is productive) and then use that to make the same assumption about residential property.

But, as far as we’re concerned, housing is always a consumption item. It costs you to own or live in a home. It’s part of the cost of living. Just like food and clothing is part of the cost of living.

He makes a similar claim in his blog, and then adds in the concept of ‘imputed rent’, claiming that this represents cash flow to the home owner.

Of course, it does nothing of the sort. As an economic concept it may be true, but to claim that imputed rent produces a cash flow – and by implication a positive cash flow is yet more trickery.

The only cash flow that a home brings to a home owner is as an expense. Unless you’ve managed to rent a room out to a lodger that is, then we’ll agree there’s a positive cash flow from the lodger.

But it does highlight something else worth mentioning. And that is rental yields. Right now, according to our chums at RP Data the gross rental yield for houses in Melbourne is just 3.8%.

Try getting a new mortgage on a home where your annual repayment is just 3.8%. That wouldn’t even cover the interest costs.

In other words, based on imputed rents, it’s more cost effective for someone to rent than it is for them to buy a house. Furthermore, the chances are that if you’re renting rather than buying you’ll rent a house that is smaller than a house you would have bought.

So, your cost savings as a renter are likely to be even greater still.

But that’s not all, in recent days the property spruikers are starting to ratchet up the untruths and propaganda. It seems the latest claim doing the rounds is that those who didn’t buy a house last year have not only missed out, but it’s cost them a potential profit of $100,000.

Not surprisingly, none of these claims are backed up with any figures. The reason it isn’t is because it isn’t true. Because the real story is that despite the figures claiming that house prices have risen by 11.8%, those that bought this time last year are still in the red.

Take off all the fees and charges and interest costs of buying a house and having a mortgage, home buyers from a year ago wouldn’t even be at breakeven point. So quite how people have missed out on $100,000 of profits we’re yet to figure out.

But, it’s as we’ve always said, the argument about buyers having missed out on the property boom flies in the face of the claims spruikers make about prices always going up.

If house prices always rise then you’ll never miss out. If house prices always double every 7 years as the spruikers claim then does it really matter if you buy this year or next? If you buy next year then you’ll double your money in 8 years from now.

What’s the rush?

The answer is, there’s no rush. All the spruikers are interested in is keeping the property ponzi scheme going. So far they’re succeeding. What they’re also succeeding at is ensuring the long-term impoverishment of the Australian economy.

We’ll be back tomorrow with more.

Cheers.
Kris.