Australian economist warns of bubble in nation's housing [View All]

[cory777]

Source: WSJ

Feb. 16, 2010, 1:11 a.m. EST
By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) -- Australia's seemingly bulletproof economy could soon face fallout from high debt levels and purportedly misguided policies designed to pump up asset prices, according to an outspoken skeptic of the nation's housing boom.

Economist Steve Keen of the University of Western Sydney, who claims to have accurately foreseen the global financial crisis, said he's been dismayed by what he sees as a growing nationwide housing bubble stoked by government efforts to forestall economic pain.

Keen points to a first-time homebuyer subsidy program, various other stimulus programs, and a 4-percentage-point reduction in interest rates -- policies introduced in the wake of the 2008 crash and which he termed "The Boost" -- as having helped fueled a new housing boom and a 6% rise in mortgage debt last year.

"The Boost has ... given Australia a dubious distinction when compared to the rest of the OECD. Yes, we are the only country that avoided a technical recession; but we are also the only country where debt levels are rising once more compared to GDP, rather than falling," Keen wrote in comments posted on his Web site, keenwalk.com.au.

He now believes Australian home prices could mimic Japan's decades-long slump, where prices have drifted 40% lower from their highs in the early 1990s.


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