Issue 365: On the revolution we have to have
16 November 2017
Paul Keating, former PM and federal treasurer, several years ago talked about the recession we had to have, before this country plunged into exactly that.
Luci Ellis, assistant governor of the Reserve Bank of Australia, on Wednesday night addressed in a speech in Melbourne, the growing thinking among some circles that what this country needs is another recession. Apparently, this would bring about the creative destruction needed to kick start greater innovation.
There’s nothing creative about a recession, Ellis said
“Recessions do not engender ‘creative destruction’; they produce liquidations, which are destructive destruction.”
Ellis is clearly a very smart woman. Everyone at the Reserve Bank is pretty smart we reckon.
They’ve kept Australia up and floating through the very worst of times. And kept us out of a recession for an extraordinary number of years.
Not that things have been perfect, and certainly there are huge pain centres with growing inequality and ridiculous housing prices making asset owners richer and forcing everyone else eat cake (or its modern day equivalent, smashed avocado).
But overall we’ve done better than most other comparable countries. What we liked about Ellis though is that she’s nailed a very concerning issue right now, what we’ll do for our economic kicks now that the housing market has slowed, which obligingly took over from where the mining boom left off.
For residential market tragics and the spruikers that have our state premiers over a barrel with the very loud very persistent messages that we don’t have enough supply, that that the property market is the engine of state growth (NSW in particular) and that the premiers especially in Melbourne and Sydney need to approve, in three weeks or less, every ugly, badly designed-up-to-the-pavement high rise or risk sending us over the cliff, Ellis has some bad news
“Residential building work remains at a high level – faster than would be needed to house our growing population – but it is no longer adding materially to growth,” she says dumping on two furphies at once.
“You could argue that there are important spillover effects from housing. People need to buy furniture and other goods to complete their new homes, after all. But it turns out not to add that much.
“Spending on furnishing and household equipment accounts for less than half the share of GDP that housing construction does, not all of it to furnish new homes. Housing construction contributed about 0.3 percentage points to annual GDP growth over recent years. So any spillover via furnishings must be even smaller. This sector is not where we will find an ‘engine of growth’ to pull us all along.”
Oops, shadow governments everywhere, back to the drawing board with you (if the premiers whispers are bothering to read Ellis that is, and if they can resist your glossy commissioned “reports” and knowing eyebrow lifts.)
If you’ve been reading these pages you’ll note that the economic sparks have now moved to the engineering sector.
- See our recent article, Market Pulse: Why demand for engineers is “on fire”
As our sources pointed out in that story and in conversations in recent months, there is huge investment in infrastructure, some yes, in dumb freeways (in Sydney and Melbourne) but also quite a significant amount in public transport. As Ellis noted good infrastructure has spinoffs into big parts of the economy.
“The newest so-called ‘engine of growth’ is public infrastructure,” Ellis says.
Better public infrastructure is good for the economy, she says, transport infrastructure especially.
But, she adds, the problem with any kind of construction-related boom, is that “none of these sectors should be thought of as sustaining growth indefinitely”.
What’s also growing are services, but in Australia she said there is a tendency to discount the value of services.
“The ‘engine of growth’ mindset also seems to divide industries into the worthy and the unworthy. Only ‘good growth’, we are told, is truly sustainable. And ‘good growth’, I can’t help noticing, always seems to be defined as ‘goods growth’. Services don’t count.”
“Do people genuinely think that it’s not really production if you can’t drop it on your foot?”
Why, it’s unclear. Better health leads to better outcomes in productivity at work and less stress on our health system, she says.
Better education improves outcomes almost everywhere. It also reduces the cost that emanates from people who are not gainfully employed and think of destructive ways to fill their days.
A brilliant writer recently said that the human spirit is highly creative. We all are. It’s our nature, and if this creativity isn’t engaged in something positive it will engage in something negative. It does not stand still. Pretty much nothing in life stands still. We are in a constant state of flux, our choice is to nudge it as much as possible in a positive way.
Ellis has focused on conventional areas of the economy to find “sustainable growth” because growth she says is totally necessary to create jobs and keep the economy ticking along.
That may be so, but we think there economic growth is possible without destroying the earth. Services are one way and they can very much be a source of sustainable growth.
To invest more care in our sick and elderly, to educate our young better and to create a better quality of life through any number of subtle services (even entertainment) does not have to create negative environmental by products as our old economies did.
But smart as she is Ellis failed to mention the biggest source of growth right under her nose, hidden in plain sight in her choice of terms, “sustainable” growth.
Our planet is on fire, or soon will be. Our buildings are a mess. Our earth is polluted and our oceans are suffocating and warming.
We need clean energy and we need better technology to make it and at the same time make it cheaper and more widely distributed.
We have green buildings but generally just at the premium end with everything else lagging abysmally behind.
It’s good to see some movement for commercial buildings in that sector in our story Victoria announces package to tackle mid-tier office and resi efficiency
But a look at our housing stock shows we have barely taken the first step.
The NAB, which has been working to reframe itself on a more sustainable footing, boasted this week it is investing $8 billion into six star housing. Ummm that’s six star NatHERS, the minimum legal standard, and we know from our work that it’s often far from achieved.
Is it the bank’s fault that it doesn’t know or doesn’t care that six star NatHERS is the basic? It sounds good. It sounds on the same level as a six star building or a five star hotel.
But how many people actually know that NatHERS goes up to 10 stars?
Is it time to harmonise the rating scales of NatHERS with what’s commonly understood for star rating systems. Surely it’s a matter of a bit of maths and a bit of benchmarking. This industry attracts some seriously intelligent people who have managed to tweak and re-benchmark other rating systems to keep them relevant, why not the one for the biggest and most important property asset of them all, our homes?
Ms Ellis there is so much do on sustainability, this is just one example of a good service.
We need also to rebuild and retrofit our building stock. We need to turn over the rest of our energy systems to renewables and make them accessible to all.
We need to start dealing with climate change and rising sea levels, and shore up the resilience of our infrastructure so that we protect it from storm surges or heat waves.
We can decontaminate our natural and built environment, so that we stop toxins making us sick. This can have huge health outcomes and therefore productivity benefits.
And everywhere there will be money to be made.
Saving the planet is already delivering great jobs growth.
Giants such as China get it and are powering – full (clean) steam ahead to become renewable and clean up their mess.
We need powerhouses like the Reserve Bank of Australia to be as creative and clever as it’s been in the past and start to bring some institutional grunt to possibly the best money spinner in history.
Ms Ellis Paul Keating was wrong, you’re right, we don’t need a recession. We need a revolution.
If you’re a bit squeamish you probably don’t want to hear too many stories about the bad old days of the property industry when men were “men” and the women sparse or very nervous. Usually both.
But here’s one that some people might enjoy for its schadenfreude.
It concerned a particularly sassy receptionist at a certain real estate agency in Sydney. It was the early days of mobile phones and office PA systems, installed so that agents could be paged to take a call on a landline (in the days when such things were expected).
On one particular occasion, one of these commercial agents happened to pocket dial the office switchboard, just as he was expounding in salacious detail his fantasies concerning the receptionist. The receptionist picked up the call, quickly switched onto the gist of what was happening and piped the monologue through the entire office.
Needless to say, the man lost his job and PA systems are no longer around (unconnected? Maybe).
In our story covering a few views of what the property industry is doing to change the bad old days, you’ll find another fun anecdote from remuneration consultant Rita Avdiev.
You might enjoy the anecdote, but you might also take heart from Adviev’s work with some young women she now mentors, the positive action from the Property Council, viewed from chief executive Ken Morrison’s eyes, and the interesting and subtle thinking from Ming Long, a long time senior property executive who, as a female, and Asian, wants to include cultural diversity as a challenge to tackle.