The Australian economy rests on a decades-long property gamble that has disenfranchised younger generations. The situation is not as severe as in America, where there has been an extraordinary transfer of wealth to the so-called top 'one per cent'. But it has split Australian society in two: between those who have little or no debt on their homes, and those who either have to rent or have huge mortgages that put them into lifetime debt slavery to the banks: peonage.
It is why the differing policies of the two major parties at the next federal election take on an unusual significance. The voters' choice will go a long way towards determining if that generational split will get better or worse. Labor's promise to change negative gearing policy, and to reduce the capital gains tax exemptions, will radically change the calculations of investors looking to buy property.
The policy is socially and economically defensible, even advisable, but it is quite a risk. If investors, who make up about half the buyers in Australia's residential property market, decide that the negative gearing tax scam no longer works for them (it might dawn on them that to get the negative gearing tax deduction they have to lose money, and a higher price when they eventually sell is no certainty), then there could be a sharp downward spiral in house prices.
That would mean that Australia's dominant asset class would be in trouble. To give some idea of the relativities, Australian houses are worth almost $7 trillion, which is more than triple the value of the stock market and the superannuation pool.
Worse, Australia's banks, which concentrate most of their business on lending against property, could easily get into trouble if property prices fall. This would in turn probably lead to a sell off in the stock market because the banks make up such a large proportion of the market capitalisation. And it may make business loans harder to get. It is not difficult to imagine, in other words, some seriously problematic outcomes.
Still, addressing the extreme distortion towards property is essential for the health of the Australian economy. As the economist Michael Hudson has documented, the economic history of the West is a continual battle between a rentier class of lenders or a political elite, and the people. Rome, he notes, was a 'financial rentier state', and Athens was for a time under the thumb of a wealth