But something is in the background that I have not touched on yet, and it is at the core of the issues. These economies are being chewed on by elements that are also essential to the mechanisms by which they operate - apex predators that ruthlessly tear down other elements of the economy. FIRE or Finance, Insurance and Real Estate. From from the stock market that seeks investment for what amounts to gambling in securities and derivatives, to the insurance industry that seeks premiums and too often has to be fought in court to get delivery of proposed benefit. To realestate, where property values, rents and lease prices are growing considerably faster than wage or industrial revenues. The last segment is the segment which is the focus of today's sermon.
Residential rents, mortgage payments while perhaps a necessary part of the market, have grown so that now people are struggling to maintain a lifestyle that resembles that of their parents. Indeed, many under 30 today have little hope of owning their own home. But lets look at the broader implications. 50 years ago people would spend around 25-30% of their income on their home, as rent or mortgage payment, this left 75% of their income available for savings, holidays, consumer goods, hobbies, eating out and more. This meant tourism, manufacturing, the restaurant sector and others were all better supported by consumer demand, because people could afford to support them.
On the other side, because industry was so well supported by consumers, and because realestate overheads - leases and rents - were less of a burden, break even was easier to achieve. As rents have increased on average 3.5-4% pa - rents have doubled in about 20 years. But aggregate demand for consumption has grown at about 1% pa. At the same time prices have risen in an attempt to compensate for consumer demand falling off because rents and mortgages now commonly consume 50-60% of wage income while wages have been squeezed - because employers are squeezed by the overheads especially rental/lease expenses for the properties in which they operate and of course the weaker consumer demand.
Many small commercial properties in my city are asking for rents, which would be similar value to two low paid full-time jobs. If we wind back to halve that rent, a business could afford to hire one more person. An extra person could easily increase productivity, which benefits that business, but more to the point, that persons discretionary income would support other business in the community, the restaurant where they like to dinner date, the cinema, the squash club, the mechanic who services their vehicle, The Home Depot, Mitre 10, or Bunnings, that they shop at for DIY decorating/renovation.
The simple aggregate of the economic growth offers an often misleading picture of the health of an economy. If a patient with a history of being underweight, or showing weak growth, suddenly gains weight quickly, it is possible that tumor a is at work pressing more heavily on the scales, while threatening the stability of other organ systems. OR in our original analogue, the shark population can grow so that it's needs exceed the productivity of their prey species to the extent that can force the prey species into collapse, and the sharks will then starve. Interestingly the sharks of the FIRE economy variously don't care, dread, and love this inherent instability in the system. They don't care - the just want the money NOW!! They dread - they don't want to be a starving shark. They love - when the crisis hits, they eat the other sharks, and become more predatory.
Why this phenomenon is affecting industrialized nations as it is now in part due to the rise of emerging economies, from which FIRE economy sharks are expanding their hunting grounds into new territories and competing with endogenous fire economy sharks. In their feeding frenzy, they are chumming the water, and attracting even more apex predators. The effect of their participation in these markets is increasing real-estate valuations, prices, mortgages, and then mortgage payment requirements and rent demands, suppressing consumer demand and increasing business overheads. All adding further pressure towards a collapsing global economy that is visibly under stress as the NASDAQ and other show faultering values even as it's prices remain in record breaking territory.
The above is all very consistent the #NoLivesMatter doctrine of Cthulhu. While governments to varying degrees acknowledge the problem, and some try to address it by restricting foreign investment. Some, the Flying Spaghetti Monster included, ponder the notion of business or residence without restate, Some have even built businesses around the concept. From software developers to drop-ship merchants, to employment agencies specializing in work for grey nomad Americans living in motor homes roaming the North American continent.
But fundamentally the problem is one of supply. More supply of housing, business parks, and facilities to meet the needs of an economy can be built to stabilize the dynamics. Some won't like these proposals essentially because they profit from, or hope to, the system in this unstable state. Building public housing is effective though it requires significant public investment, the case can and has be made successfully to electorates. Developers have neither the scale nor the interest in building low cost housing/low rent housing, especially when house builds for the upper end of the market is significantly more profitable.
Both In New Zealand and the UK public home building has a long history, Vienna has a long history of subsidised rentals, and Germany has a public agency tasked with monitoring housing affordability and requiring new house building with a mandate to keep housing costs down for all Germans. It is a smart thing to do, German's have high disposable incomes because the rent isn't reaching into their wallets before they do - at least as much as in the UK for NZ. Combined with the German economy's focus on technology, innovation and engineering, low cost renewable energy and recycling, the German economy is one of the most high performance economies in the world. featuring a child poverty rate of 9.5% 2014, compared with 27% in 2016 for New Zealand( foreign property invest here is a free-for-all - The Inland Revenue Department doesn't even track it), while Denmark and Finland have child poverty rates of 3-4% according to OECD. Europe exerts more control on foreign property investment for many of concerns raised above and more.
