Impact of GEC (GFC) on Local Property

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Impact of GEC (GFC) on Local Property

  1. 1. Impact of GEC (GFC) on Local P L l Property t Michael Chappell Director p r a c sy s .
  2. 2. Outline 2 ! Michael Chappell ! What went wrong? ! What will happen next? ! The good news g ! The bad news ! Megatrends for cities p r a c sy s .
  3. 3. Michael Chappell 3 ! Economist with 23 years experience ! Founder and Director of Pracsys Economics ! Research program economics of urban systems p r a c sy s .
  4. 4. Pracsys 4 ! Offices in Perth, Sydney, Brisbane ! Feasibility, strategy, impact ! Economics of urban sustainability www.innovation4cities.com.au www.pracsys.com.au p r a c sy s .
  5. 5. What went wrong? 5 ! OECD June 2007 " “the c rrent economic situation is in man ways much better than we current sit ation many a s m ch e have experienced in years” " “soft landing in the USA and strong & sustained recovery in Europe” " “solid trajectory in Japan” " “unprecedented growth in China and India” ! Two months later, BNP closes three subprime funds…. Lehman Brothers FM & FM Basis… funds Brothers, FM, p r a c sy s .
  6. 6. What happened? 6 ! Economy has declined deeply and quickly ! Deeply because of simultaneous bursting of property, property equity and commodity bubbles ! Quickly because of the amount of private debt in opaque packages p r a c sy s .
  7. 7. What happened? 7 ! 2007: +5% GDP growth but Australia’s aggregate demand due to change in debt: +20% Australia, +23% USA A t li ! Raiding the kids piggy banks! kids’ p r a c sy s .
  8. 8. How it Happened 8 ! Commodity boom & cheap debt pushed household expenditure & investment in housing & equities ! Much debt was ‘on a knife’s edge’, exposed by subprime crisis – worldwide (Madoff’s Ponzi) ! Bad debts exploded & financiers withdrew funds ! Growth stalled - recession - unemployment ! Asset prices fell – margin calls – negative equity p r a c sy s .
  9. 9. What happens next? 9 ! Economy will contract with unemployment 8% + ! Bad debts and savings will increase ! Government Stimulus Package straight to private savings (or debt reduction) ! Package = $70b, private debt = $2,000b P k $70b i t d bt $2 000b ! Asset demand goes from debt-fuelled to income-fuelled g ! All asset prices will fall – but how much?? p r a c sy s .
  10. 10. The Good News 10 ! Australia is in top 5 economies globally ! 3 years p y pent up demand residential, commercial? p , ! Population growth much higher than expected " Natural increase " High immigration (p g g (poorer performing economies) p g ) " Low dwelling supply to support prices ! New areas supported by first home buyers ! Interest rates falling – a bit g p r a c sy s .
  11. 11. The Bad News 11 ! 7/10 of Australia’s trading partners in recession ! Property bubble much longer than 1990/91 ! 10% - 20% fall already (finance freeze effect) – another 10% + in 2009 (unemployment effect) ! Tokyo h f ll T k has fallen 72% since 1989 peak i k p r a c sy s .
  12. 12. The Bad News 12 ! If 20% + fall – mortgage stress doubles ! Car dealers: 21% fall sales Feb 08 – Feb 09 ! First home buyers don’t know about unemployment… ! Banks are increasing profit margins p r a c sy s .
  13. 13. On Balance 13 ! Demand for property will fall, which is good ! Some projects fall over due to finance (& bankruptcies) ! Prices decline 2009/2010 (unemployment effect) then flat until 2012 ! Supply will eventually catch up (cheap immigrant labour?), S l ill t ll t h ( h i i t l b ?) then gradual increase beyond 2012 ! China may provide ‘silver bullet’ – but with our assets! p r a c sy s .
  14. 14. Megatrends – Abundance to Scarcity 14 ! Food ! Water ! Transport ! Energy gy ! Finance p r a c sy s .
  15. 15. Food 15 ! Access to protein will shape cities i f t A t t i ill h iti in future ! Protein comes from beef, pork, chicken ,p , ! Most feed for livestock comes from fishmeal ! Fishmeal is nearly gone! Food Conversion Ratio Critical for cities: Beef 12:1 secure local food production Pork 8:1 c ose popu at o us g close to population using renewable inputs Chicken 6:1 (aquaculture, grains..) Fish 1:1 p r a c sy s . World Food Organisation, 2007
  16. 16. Water 16 ! Most drinking water goes on lower order uses ! Reuse, recycle, repurpose ! Innovation in decentralised capture, storage and capture use of water will reshape cities Critical for cities: Diversification of water sources, improved sources reuse across all user types and zero liquids discharge from industrial estates p r a c sy s .
  17. 17. Energy 17 ! Fossil fuels for power generation in decline ! Decentralised power generation from renewables is rising – but peak load capacity is weak ! We need better portable storage (eg: nonobatteries vs NiMeHi) and fixed storage (vanadium flow batteries) Critical for cities: power storage innovation has lagged (car companies?) and new efficient technologies are needed p r a c sy s .
  18. 18. Transport 18 ! Urban sprawl has separated people from city amenities and jobs (particularly smart jobs) ! Car use has grown based on cheap fuel ! Public transit systems work best serving dense urban agglomerations Critical for cities: private transport based on renewable energy and public transport serving dense, diverse activity centres p r a c sy s .
  19. 19. Finance 19 ! World finance system is badly broken ! Globalisation and ‘innovation’ separated sources and innovation application of funds too much ! Regulation must tighten, but only to improve transperency and information flows ! Bubbles are good for the economy of cities in the long run because they fund innovation p r a c sy s .

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