Government Policy During RE Bubbles – “Economic policies which encourage people to borrow and speculate into a rising asset markets, causing general economic largesse. They want to have affordable expensive housing, that’s their policy.”

Interview with Steve Keen, Australian economist, on the Australian housing bubble that is now beginning it’s deflation. Keen predicts 40% price drops, over years. Video and transcript of interview at  finnewsnetwork, 25 May 2011.
Excerpt, that could just as well be applied to Canada – “Both parties here… claim that they want to have affordable housing, but really they’ve both had economic policies which, whether they’re conscious of it or not, have been dominated by encouraging people to borrow and speculate into a rising asset markets and that causing general economic largesse. So they want to have affordable expensive housing, that’s their policy.”

Further comments of note in the interview:
“I think what you have to do is get to the stage where you actually buy a house to live in, not to speculate on. And, with landlords, if they buy them to make an income from, buy them to make a profit from the rental income, not that of capital gain. Now that implies you’ve got to wait until housing prices have fallen something of the order of that 40 per cent that I’ve mentioned before hand, maybe even more, before it becomes possible for a landlord to borrow money, buy a house, and earn enough money from the rental income to more than service the mortgage and then you have a European situation for rents, which is what we need in this country. That’s why I think Germany hasn’t had a crisis, by the way.”

2 responses to “Government Policy During RE Bubbles – “Economic policies which encourage people to borrow and speculate into a rising asset markets, causing general economic largesse. They want to have affordable expensive housing, that’s their policy.”

  1. This is also quite enlightening (found in comment section of greaterfool)
    http://www.debtdeflation.com/blogs/2011/06/08/my-property-debate-presentation/

    I wonder about “accelerating debt” as a cause of house prices, people don’t buy houses because they take on debt, it’s the other way around. Is there some more fundamental measure of “ease of taking on more debt” that can be correlated to price changes? That could show the correlation between prices and the banks rules for lending.

  2. Steve Keen gets it.

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