The price of fish
The median house price in Australia is now 50 per cent higher than the median price in the United States.
According to figures published yesterday by local research firm, Adviser Edge, the Australian median house price is now $A432,767, up 12 per cent in the past year. The head of property research there, Louis Christopher, is predicting another 12 per cent increase this year.
According to the zillow.com national database, the media US house price is now $US244,000 ($A277,000), 5.7 per cent less than it was a year ago and just two-thirds of the median in Australia.
This is a huge disparity between the cost of housing in Australia and the US, and is not matched by a difference in incomes.
The median household income in the United States is $US46,326 per annum, or a bit more than $A52,000. In Australia the average total earnings for all households is $A45,500. There are differences in the data, so it is difficult to compare, but it seems incomes are roughly the same, or perhaps a bit higher in the US.
It’s not just houses, either. Last night my wife and I went out to a fairly up-market seafood restaurant for dinner in Melbourne; my barramundi cost $38 (no veg), her spaghetti with prawns was $36. It was very nice, I have to say, but when the bill came - ouch!
When I got home I checked out the menus of a few high-class seafood restaurants in Boston, Massachusetts, on the internet. From what I could tell, it would be virtually impossible to pay more than $US25 ($A28) for a piece of fish or a plate of seafood spaghetti there.
Obviously, I don’t know how good the Big Fish Seafood Restaurant (five stars) is, or l’Espalier for that matter, or whether they do barramundi with the crust just so, but hey - how bad can it be?
It seems to me that Australia is suffering a version of what Alan Greenspan, in his book of memoirs, The Age of Turbulence, called the Dutch disease.
The Economist coined the term in the 1970s to describe the travails of manufacturers in the Netherlands after the discovery there of natural gas. Heavy foreign demand for the gas led to large purchases of guilders, which drive up the currency relative to the US dollar and German mark.
Australia’s version of the disease adds high real estate values, despite an abundance of the stuff. That flows through to a high cost of living as incomes are restrained by the struggling of manufacturing industries.
But as Greenspan wrote: “Dutch disease can strike anywhere”. “Norway, with a population of less than five million had to take dramatic action to insulate its small economy from the North Sea oil bonanza. The country developed a large stabilisation fund that reduced pressure on the krone’s exchange rate after it spiked in the late 1970s.”
Australia is also a small, developed country with massive resources that have caused the currency to rise. Manufacturing in this country is also going down the drain because of the high country, which is holding back the incomes of ordinary workers.
The finance sector, however, has been booming, and corporate executives have been doing very well indeed, which has produced a wide disparity of incomes and tended push up house values (and restaurant prices).
The Howard Government established the Future Fund as a repository for accidental budget surpluses, due to resources profits, to fund public service pensions, which is not the same thing as Norway’s national stabilisation fund, but it’s better than nothing.
However, there is no doubt that despite a long resources boom in this country, with the highest terms of trade in two generations, the standard of living here is not as high as it should be.
Unemployment is very low and incomes have been rising steadily at a little more than the consumer price index, especially in WA and Queensland, but the nation just tossed out a government partly because most voters don’t actually feel all that well off.
Housing, in particular, is expensive here, and getting more so. Although the prices of imported goods are coming down, the prices of everyday essentials like food and beer are rising quickly.
To that extent, Prime Minister Kevin Rudd’s statement a week ago that Australia’s key economic problem is inflation was correct, but perhaps not in the way he meant. Australia has become an expensive place to live and to visit.
And things like that have a habit of adjusting themselves.
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