Albo wants to send house prices to Valhalla (and a weekly news recap)

Posted by Gavin Chau

There isn’t much difference between Labor’s and Liberal’s policies in Australia, particularly when it comes to housing affordability. I guess it’s not that surprising since they are both trying to catch the swing voters sitting on the fence—the ones who alternate votes between either party rather than the die-hard voters from either side. This means that the policies of both parties tend to drift towards the middle over time.

Both have proposed demand-side solutions to what is primarily an issue around the monetary system itself. While a switch to sound money isn’t on the table, the only realistic solution to the affordability problem is to increase supply—removing all the red tape and taxes around construction would be a good starting point.

What is the proposal?

Albo is planning to drop the deposit for housing to 5% for first home buyers instead of the standard 20%. The government guarantees the other 15%, removing the need for lenders’ mortgage insurance (LMI). There are no limitations on income or home value. The average LMI cost is $23,000. They plan to have everything in effect by January 1st, 2026… Happy New Year to all investors!

Like all demand-side policies, this will drive up the property market’s price by the subsidy amount. The primary beneficiaries will be people who already own property—they will get to watch their portfolios go up in price.

Expanded rent assistance

Investors will also benefit from the most significant increase to Commonwealth Rent Assistance (CRA) in 30 years. The budget will increase the maximum rates of this payment by 15%. One of my tenants is under the CRA program, and the government pays 75% of their rent. Thus, you end up with a very stable tenant who isn’t sensitive to rent increases.

I guess John Howard was right when he said nobody had ever stopped him on the street to complain that their house price was rising too fast. The government has no real incentive to make housing more affordable if most voters are also homeowners.

What else has been happening?

NAB predicts four rate cuts by August

Big call! This means that the pace of the cuts would mirror those of the GFC and the pandemic. It is likely because they believe the potential economic shock from the trade war between the US and China is going to be bigger than expected and the fact that the household sector has been in a recession for two years. Per capita household consumption has been negative for eight consecutive quarters, even though GDP per capita has just turned positive after seven straight quarters of decline. The Australian economy has been more heavily aligned with China than the US for decades if China slows we will as well. If it happens, this will put a rocket under Australian house prices – either way, more rate cuts are coming.

Middle East

The Yemenis (Houthi Rebels) do not seem to be deterred by the daily bombings by the US military since March 15 and have driven off the USS Harry S. Truman aircraft carrier with a missile that caused it to turn fast enough that a $60m F/A-18 fighter jet fell off the deck and sank into the red sea. They can add that to the seven Reaper drones shot down over the same period at a total cost of $210m. The Reaper drone is significant because it’s the only weapons system that can launch a strike on a target as soon as it becomes visible, and the Yemenis tend to use mobile missile launchers that move as soon as they are fired.

The Yemenis have also fired a missile at Ben Gurion Airport in Israel in the widening conflict, bypassing both the US THAAD and Israel’s Iron Dome missile defense system. The introduction of hypersonic missiles and other asymmetric war-fighting technologies has forced military commanders to rethink what they know about conflict, as has been proven in the Russia-Ukraine conflict.

The Trump administration has thankfully backtracked from a wider war with Iran and has stated that it will take no action against Iran’s civilian nuclear program. No doubt, Netanyahu will be furious and has vowed to retaliate against Iran on his own—probably a bad idea.

Trade wars

The 90-day tariff pause will end on Independence Day, the 4th of July. I’m unsure if this was symbolic or what the Trump administration will likely do after this. China’s Ministry of Commerce still hasn’t responded to the tariff hikes placed on it, other than to say that they are waiting for the US to rectify its erroneous unilateral tariff measures. They seem happy to wait.

Meanwhile, container ship volumes from China to the US have dropped 40 to 60%—those effects will begin to show on US shelves this week or next. The effects will be felt throughout the logistics chain, from dock workers to warehouses, the trucking industry, and retail. Even if normal trade resumes immediately, it will take at least a month before items start hitting the shelves again.

Trade wars hurt both sides, and this will end up being a war of attrition—in the short run, it’s far easier to find a new market to sell to than build a new factory and supply chain. Essayist and statistician Nassim Nicholas Taleb calculated that for every dollar China loses, the US loses seven.

So far, the trade war has likely isolated the US from other economies, with China, Japan, South Korea, and the Southeast Asian economies coming closer together. The EU has also moved closer to China as the Trump administration withdraws from Europe. I’m fascinated to see how this plays out. In Australia, we have been doing okay out of it so far. We’ve picked up some trade with China since US suppliers for beef, LNG, and apples have been dropped by China.

Warren Buffett retires at 94

Since 1964, Berkshire Hathaway has returned 5,500,000% or 5.5 million percent compared to 39,000% in the S&P 500. If you had invested $1000 with him, you would have $55,000,000 today. Warren Buffett announced that he would retire just as these trade wars started, and the world order begins its once-in-a-100-year restructuring. Can’t say the guy isn’t a master of timing – he’s leaving us to figure out the new paradigm on our own.

That’s about it for this week.

Posted by Gavin Chau, on 6th May 2025