"Intelligent Insight"
Here is the edited version of our live stream event for January. In the show we update our property and finance scenarios, and answer a range of questions from viewers. We ran out of time, so I plan to make a future show covering those I missed. Here are our current scenarios:
The original live recording, with the embedded live chat is also available. You will need to watch on YouTube to follow the interactions:
Our next live show will be at 20:00 Tuesday 18th February.
Those who say “I told you so” are rarely welcomed, yet I am going to say it here. Australian scientists warned the country could face a climate change-driven bushfire crisis by 2020. It arrived on schedule. Via The Conversation.
For several decades, the world’s scientific community has periodically assessed climate science, including the risks of a rapidly changing climate. Australian scientists have made, and continue to make, significant contributions to this global effort.
I am an Earth System scientist, and for 30 years have studied how humans are changing the way our planet functions.
Scientists have, clearly and respectfully, warned about the risks to Australia of a rapidly heating climate – more extreme heat, changes to rainfall patterns, rising seas, increased coastal flooding and more dangerous bushfire conditions. We have also warned about the consequences of these changes for our health and well-being, our society and economy, our natural ecosystems and our unique wildlife.
Today, I will join Dr Tom Beer and Professor David Bowman to warn that Australia’s bushfire conditions will become more severe. We call on Australians, particularly our leaders, to heed the science.
Many of our scientific warnings over the decades have, regrettably, become reality. About half of the corals on the Great Barrier Reef have been killed by underwater heatwaves. Townsville was last year decimated by massive floods. The southeast agricultural zone has been crippled by intense drought. The residents of western Sydney have sweltered through record-breaking heat. The list could go on.
All these impacts have occurred under a rise of about 1℃ in global average temperature. Yet the world is on a pathway towards 3℃ of heating, bringing a future that is almost unimaginable.
How serious might future risks actually be? Two critical developments are emerging from the most recent science.
First, we have previously underestimated the immediacy and seriousness of many risks. The most recent assessments of the Intergovernmental Panel on Climate Change show that as science progresses, more damaging impacts are projected to occur at lower increases in temperature. That is, the more we learn about climate change, the riskier it looks.
For Australia, a 3℃ world would likely lead to much harsher fire weather than today, more severe droughts and more intense rainfall events, more prolonged and intense heatwaves, accelerating sea-level rise and coastal flooding, the destruction of the Great Barrier Reef and a large increase in species extinctions and ecosystem degradation. This would be a tough continent to survive on, let alone thrive on.
The city I live in, Canberra, experienced an average seven days per year over 35℃ through the 1981-2010 period. Climate models projected that this extreme heat would more than double to 15 days per year by 2030. Yet in 2019 Canberra experienced 33 days of temperatures over 35℃.
Second, we are learning more about ‘tipping points’, features of the climate system that appear stable but could fundamentally change, often irreversibly, with just a little further human pressure. Think of a kayak: tip it a little bit and it is still stable and remains upright. But tip it just a little more, past a threshold, and you end up underwater.
Features of the climate system likely to have tipping points include Arctic sea ice, the Greenland ice sheet, coral reefs, the Amazon rainforest, Siberian permafrost and Atlantic Ocean circulation.
These tipping points do not act independently of one another. Like a row of dominoes, tipping one could help trigger another, and so on to form a tipping cascade. The ultimate risk is that such a cascade could take the climate system out of human control. The system could move to a “Hothouse Earth” state, irrespective of human actions to stop it.
Hothouse Earth temperatures would be much higher than in the pre-industrial era – perhaps 5–6℃ higher. A Hothouse Earth climate is likely to be uncontrollable and very dangerous, posing severe risks to human health, economies and political stability, especially for the most vulnerable countries. Indeed, Hothouse Earth could threaten the habitability of much of the planet for humans.
Tipping cascades have happened in Earth’s history. And the risk that we could trigger a new cascade is increasing: a recent assessment showed many tipping elements, including the ones listed above, are now moving towards their thresholds.
Now is the perfect time to reflect on what science-based risk assessments and warnings such as these really mean.
Two or three decades ago, the spectre of massive, violent bushfires burning uncontrollably along thousands of kilometres of eastern Australia seemed like the stuff of science fiction.
Now we are faced with more than 10 million hectares of bush burnt (and still burning), 29 people killed, more than 2,000 properties and several villages destroyed, and more than one billion animals sent to a screaming, painful death.
Scientists are warning that the world could face far worse conditions in the coming decades and beyond, if greenhouse gas emissions don’t start a sharp downward trend now.
Perhaps, Australia, it’s time to listen.
Author: Will Steffen, Emeritus Professor, Australian National University
The Senate hearing on the 12th December 2019 relating to the Restriction of Cash Transactions Bill revealed the lack of facts, data and rationale for the proposed legislation. This is a 5 minute highlights package underscoring this – and something which your Senators and MP’s must see before its too late.
It is not too late to take action to help drive home that point that this Bill should not be passed.
What I Said To The Senate On The Restrictions On The Use Of Cash Bill
https://www.aph.gov.au/Parliamentary_Business/Bills_LEGislation/Bills_Search_Results/Result?bId=r6418
https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/CurrencyCashBill2019
https://www.aph.gov.au/Senators_and_Members
The latest WEF reports make salutatory reading. While there are some tentative signs of growth, the risks, from trade through to weather related, abound.
Trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity—especially manufacturing and trade—in the second half of 2019. Intensifying social unrest in several countries posed new challenges, as did weather-related disasters—from hurricanes in the Caribbean, to drought and bushfires in Australia, floods in eastern Africa, and drought in southern Africa.
In this update to the World Economic Outlook, we project global growth to increase modestly from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021. The slight downward revision of 0.1 percent for 2019 and 2020, and 0.2 percent for 2021, is owed largely to downward revisions for India. The projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels.
There are preliminary signs that the decline in manufacturing and trade may be bottoming out. This is partly from an improvement in the auto sector as disruptions from new emission standards start to fade. A US-China Phase I deal, if durable, is expected to reduce the cumulative negative impact of trade tensions on global GDP by end 2020—from 0.8 percent to 0.5 percent.
The projected recovery for global growth remains uncertain.
The service sector remains in expansionary territory, with resilient consumer spending supported by sustained wage growth. The almost synchronized monetary easing across major economies has supported demand and contributed an estimated 0.5 percentage point to global growth in both 2019 and 2020.
In advanced economies, growth is projected to slow slightly from 1.7 percent in 2019 to 1.6 percent in 2020 and 2021. Export dependent economies like Germany should benefit from improvements in external demand, while US growth is forecast to slow as fiscal stimulus fades.
For emerging market and developing economies, we forecast a pickup in growth from 3.7 percent in 2019 to 4.4 percent in 2020 and 4.6 percent in 2021, a downward revision of 0.2 percent for all years. The biggest contributor to the revision is India, where growth slowed sharply owing to stress in the nonbank financial sector and weak rural income growth. China’s growth has been revised upward by 0.2 percent to 6 percent for 2020, reflecting the trade deal with the United States.
The pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey and for underperforming emerging and developing economies such as Brazil, India, and Mexico.
Risks retreating but still prominent
Overall, the risks to the global economy remain on the downside, despite positive news on trade and diminishing concerns of a no-deal Brexit. New trade tensions could emerge between the United States and the European Union, and US-China trade tensions could return. Such events alongside rising geopolitical risks and intensifying social unrest could reverse easy financing conditions, expose financial vulnerabilities, and severely disrupt growth.
Importantly, even if downside risks appear to be somewhat less salient than in 2019, policy space to respond to them is also more limited. It is therefore essential that policymakers do no harm and further reduce policy uncertainty, both domestic and international. This will help to revive investment, which remains weak.
Policy priorities
Monetary policy should remain accommodative where inflation is still muted. With interest rates expected to stay low for long, macroprudential tools should be proactively used to prevent the build-up of financial risks.
Given historically low interest rates alongside weak productivity growth, countries with fiscal space should invest in human capital and climate-friendly infrastructure to raise potential output. Economies with unsustainable debt levels will need to consolidate, including through effective revenue mobilization. To ensure a timely fiscal response if growth were to slow sharply, countries should prepare contingent measures in advance and enhance automatic stabilizers. A coordinated fiscal response may be needed to improve the effectiveness of individual measures. Across all economies, a key imperative is to undertake structural reforms, enhance inclusiveness, and ensure that safety nets protect the vulnerable.
Countries need to cooperate on multiple fronts to lift growth and spread prosperity. They need to reverse protectionist trade barriers and resolve the impasse over the World Trade Organization’s appellate court. They must adopt strategies to limit the rise in global temperatures and the severe consequences of weather-related natural disasters. A new international taxation regime is needed to adapt to the growing digital economy and to curtail tax avoidance and evasion, while ensuring that all countries receive their fair share of tax revenues.
To conclude, while there are signs of stabilization, the global outlook remains sluggish and there are no clear signs of a turning point. There is simply no room for complacency, and the world needs stronger multilateral cooperation and national-level policies to support a sustained recovery that benefits all.
I have warned before of the hidden algorithms which means that some comparison site results may not be providing what you expect. Not impartial, objective and transparent price comparisons. Hence the release from the ACCC should be of no surprise! Trivago misled consumers about hotel room rates.
The Federal Court has found Trivago breached the Australian Consumer Law when it made misleading representations about hotel room rates both on its website and television advertising.
An example of Trivago’s online price display taken on 1 April, 2018. For example, the $299 deal is highlighted below, when a cheaper deal was available if a consumer clicked “More deals” (underneath the offers from other booking sites in the middle panel).
The Court ruled that from at least December 2016, Trivago misled consumers by representing its website would quickly and easily help users identify the cheapest rates available for a given hotel.
In fact, Trivago used an algorithm which placed significant weight on which online hotel booking site paid Trivago the highest cost-per-click fee in determining its website rankings and often did not highlight the cheapest rates for consumers.
“Trivago’s hotel room rate rankings were based primarily on which online hotel booking sites were willing to pay Trivago the most,” ACCC Chair Rod Sims said.
“By prominently displaying a hotel offer in ‘top position’ on its website, Trivago represented that the offer was either the cheapest available offer or had some other extra feature that made it the best offer when this was often not the case,” Mr Sims said.
The Court also found Trivago’s hotel room rate comparisons that used strike-through prices or text in different colours gave consumers a false impression of savings because they often compared an offer for a standard room with an offer for a luxury room at the same hotel.
“We brought this case because we consider that Trivago’s conduct was particularly egregious. Many consumers may have been tricked by these price displays into thinking they were getting great discounts. In fact, Trivago wasn’t comparing apples with apples when it came to room type for these room rate comparisons,” Mr Sims said.
The Court also found that, until at least 2 July 2018, Trivago misled consumers to believe that the Trivago website provided an impartial, objective and transparent price comparison for hotel room rates.
“This decision sends a strong message to comparison websites and search engines that if ranking or ordering of results is based or influenced by advertising, they should be upfront and clear with consumers about this so that consumers are not misled,” Mr Sims said.
A hearing on relief, including penalties, will be held at a later date.
Background
Trivago’s website aggregates deals offered by online hotel booking sites (like Expedia, Hotels.com and Booking.com) and hotel proprietors’ own websites for available rooms at a hotel and highlights one offer out of all online hotel booking sites (referred to as the ‘Top Position Offer’). However, Trivago’s own data showed that higher-priced room rates were selected as the Top Position Offer over alternative lower-priced offers in 66.8% of listings.
Trivago’s revenue was primarily obtained from cost-per-click (CPC) payments from online hotel booking sites, which significantly affected that booking site’s appearance and prominence in search results.
The ACCC has sought orders for penalties, declarations, injunctions and costs.
Our next live event will run tomorrow. Ask a question live, or send them in beforehand via the DFA blog.
Demographia have released their 16th annual survey of comparable housing affordability using their average price and average income data across more than 300 locations.
Their methodology is quite specific and allows comparisons to be made across multiple centres, and over time. Any centre scoring above 5 is judged as severely unaffordable.
I have to say I get pretty tired of some who dismiss their approach as distorting the true picture on the basis that averages mask. True I am cautious of averages generally, but it is consistently applied in my book and so makes an important contribution to understanding the relative affordability across many countries, including Australia and New Zealand. And the news is not good at all….
They also run two sets of results, the first is more major centres, and the other is the full set of the results. Across the major housing markets they conclude that all five in Australia are severely affordably (again), as is Auckland in New Zealand.
The least affordable areas include Hong Kong at 20.8, Vancouver at 11.9, Sydney at 11.0, Melbourne at 9.5, Bay of Plenty (NZ) at 9.3, LA at 9, Toronto Canada 8.6 and Auckland also at 8.6
On the other hand, in all markets, 22 out of 23 markets are unaffordable in Australia, and ALL of New Zealand’s Markets are unaffordable.
They also show the deterioration in affordability is significant is every market, but with New Zealand and Australia leading the way, with price to income ratios becoming adverse, thanks to issues of land supply (their particular thematic) and over generous lending (DFA’s thesis) of the underlying reason.
Looking at Australia, the least affordable regions are Sydney, Melbourne, Sunshine Coast, Gold Coast, Geelong, Hobart, Adelaide, Fraser Coast in QLD and Canberra, followed by Brisbane, Perth, Ballarat, and Cairns. They are all above the 5.0 affordability benchmark. Frankly this is the bulk of the populated areas in the country – this screams to me “poor policy”.
And the trends are only improving a little thanks to price fall last year. The recent reversals in some areas will just make things worse again.
Demographia said of Australia:
Australia’s generally unfavorable housing affordability is in significant contrast to the broad affordability that existed before implementation of urban containment (called “urban consolidation” in Australia). The price-to-income ratio in Australia was below 3.0 three decades ago
Again, as in each of the previous 15 Demographia International Housing Affordability Surveys, all of Australia’s five major housing markets are severely unaffordable. Even so, housing remains severely unaffordable in all of the major markets, and by a substantial margin in Sydney and Melbourne. Despite what has been called the largest Sydney price reduction in 35 years, house prices relative to incomes are more than double the rate of the early 1980s. In Sydney and Melbourne, median income households need at least three years’ more income to pay for the median priced house than in 2004, when the first Demographia Survey was published.
OECD expressed the following assessment of the Australian housing market (December 2018): “Australia’s housing market is a source of vulnerability. Prices have more than doubled in real terms since the early 2000s and household debt has surged. The market has started to cool over the last year, with prices falling most notably in Melbourne and Sydney. So far, data point to a soft landing without substantial consequence for the overall economy. Nevertheless, risk of a hard landing remains.”
Sydney is again Australia’s least affordable market, with a Median Multiple of 11.0, and ranks third least affordable overall, trailing Hong Kong and Vancouver. Melbourne has a Median Multiple of 9.5 and is the fourth least affordable major housing market internationally. Only Hong Kong, Vancouver, and Sydney are less affordable than Melbourne. Adelaide has a severely unaffordable 6.9 Median Multiple and is the 14th least affordable of the 92. Brisbane has a Median Multiple is 6.3 and is ranked 17th least affordable, while Perth, with a Median Multiple of 6.0 is the 19th least affordable major housing market in this year’s Demographia Survey.
Overall, Australia’s housing markets have a severely unaffordable Median Multiple of 5.9. There is only one affordable market, Gladstone, Queensland, with a Median Multiple of 2.8. Overall 14 markets in Australia are rated severely unaffordable. The least affordable are the Sunshine Coast, Queensland (8.4) and the Gold Coast, Queensland (8.0).
Australia’s high house prices have increased the cost and demand for subsidized housing. The Australian Housing and Urban Research Institute estimated that “current housing need in Australia to be 1.3 million households,” and expected the need to worsen. A Parliamentary briefing book found that “ …the stock of social housing is not increasing at a rate sufficient to keep up with demand, and waiting lists for social housing remain long. ”
In New Zealand, all markets, including Auckland, Christchurch and Wellington are unaffordable.
The trends are also showing affordability remains a strategic issue.
Demographia says
In New Zealand, as in Australia, housing had been affordable until approximately a quarter century ago. However, urban containment policies were adopted across the country, and consistent with the international experience, housing became severely unaffordable in all three of New Zealand’s largest housing markets, Auckland, Christchurch and Wellington (Figure 10). New Zealand’s price-to-income ratio was below 3.0 in the early 1990s.
Recent New Zealand Median Multiple trends have been influenced by government restatement of median income data. Auckland, New Zealand’s only major housing market has a severely unaffordable 8.6 Median Multiple. This is an improvement from 9.0 in 2018.
Even so, Auckland’s housing affordability has deteriorated from a Median Multiple of 5.9 in the first Demographia Survey (2004), thus adding nearly three years in pre-tax median household income to the house prices.
Auckland is the sixth least affordable among the 92 major housing markets, and has been severely unaffordable in all 16 Demographia International Housing Affordability Surveys. New Zealand’s’ second and third largest markets have experienced significantly different housing affordability trends over the last decade. Second largest Christchurch has a Median Multiple of 5.4, an improvement of 0.7 points from the 6th annual Demographia International Housing Affordability Survey.
Third largest Wellington has a Median Multiple of 6.8, a deterioration of 1.2 points over the past decade (Figure 10).
New Zealand’s middle-income housing crisis has strained government low-income housing budgets. Emergency aid has been increased to accommodate some low-income households in motels and waiting lists have been growing.
Housing affordability remains an issue of considerable public concern in New Zealand. The latest IPSOS New Zealand Issues Monitor (November 2019), with 62 percent respondents believing that they cannot afford to purchase a house in their own market. Housing affordability has been a principal issue from the time of the lead – up to the 2008 election and Parliaments 2007-8 Commerce Committee Housing Affordability Inquiry, chaired by the National Party’s Hon. Gerry Brownlee. National’s then Housing Spokesman and later Minister Hon. Phil Heatley toured the United States and United Kingdom prior to the election to study housing.
The Labour Party led coalition government’s Urban Growth agenda calls for intensified residential development, both greenfield and infill. This includes the abolishment of the Auckland urban containment boundary.
The government is also proceeding with plans to reform infrastructure finance to rely on debt to be serviced by residents of new developments, rather than public expenditures. During the December 1st Reading of the Infrastructure Funding and Financing Bill , Urban Development Minister Twyford acknowledged the broad political support for the Bill. Just prior to this, the Urban Development Bill was introduced in Parliament.
Twyford addressed the Government Economics Network Conference in December, reiterating the government’s commitment to improving housing affordability. “The argument I want to make to you is that generations of urban land use policy have lacked a decent grounding in economics. The consequences of that have been disastrous. And if we want to turn it around it is going to take bold reform and policies informed by an understanding of urban spatial economics”.
The final point they make is that price is directly linked to control of land supply. Markets, like Australia and New Zealand, where land releases are controlled and rationed help to explain the rising prices and falling affordability. And this of course despite falling interest rates.
This is one right royal mess, and the social and economic consequences will resonate down the years. housing affordability sucks.
The CEC just released a “highlights” package drawn from the Senate hearings. There is no evidence of the effectiveness of the ban, no business case, no data; just anecdotal hearsay. This is ideological claptrap.
What a vague basis for supporting a bill which narrows our human rights. A public disgrace!
In the next part of our series Economist John Adams and Analyst Martin North consider the relationship between Deposit Insurance and Bail-In. Things are not straightforward.
It’s Too Late – Bail-In Has Already Happened!
Solicitor Confirms That Bail-In Of Deposits IS Legal
https://www.adamseconomics.com/post/deposit-insurance-is-no-protection-against-bail-in