The End Result of Decades of Fiat Money
We have recently come across a few house price charts – the Economist has a handy tool that allows one to compare global house prices and a few related indicators, like price/rental yield and price/income. Based on house price indexes alone, the cheapest real estate is currently available in Japan (where prices have been declining since 1989 in spite of the fact that they are not making any new land there – imagine that!), while the by far biggest real estate bubble appears to be underway in South Africa.
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However, one needs to consider that the South African Rand has declined quite a bit since the 1970s, and the country had very high relative price inflation rates both during and after the apartheid era. As a result, prices are actually not all that stretched in real terms.
Nominal house price indexes, South Africa and Japan, 1975 – 2014: the strongest and weakest nominal house price indexes in the world – click to enlarge.
Prices in Japan look even cheaper in real terms though, no doubt a result of Japan’s demographic situation (the population is shrinking) and the fact that the pre-Kuroda BoJ wasn’t totally crazy and didn’t inflate all out. In spite of running several QE programs, the BoJ for a long time failed to produce high money supply growth rates (this may be changing now, see our recent comments here). It also turns out that real house prices in South Africa were actually higher in the early 1980s than they are today – presumably this was the after-glow of the 1970s gold boom.
Real house prices in South Africa and Japan, 1975 to 2014 – click to enlarge.
If one plays around a bit with the Economist’s tool, one soon notices that the current world leader in house price insanity is actually Great Britain. However, the UK data are heavily skewed by prices in London, one of the prime refuges of Russian oligarchs (of course only responsible oligarchs are welcome in London) and assorted oil sheiks (valued allies who are lauded for the great political progress they are making, even while critical bloggers are sentenced to a thousand lashes and beheadings are a daily spectacle. Responsible sheiks, in other words).
Most other countries are not far behind though – it is practically impossible to find a house price index chart apart from Japan’s that doesn’t look positively hyper-inflationary. So if you are among the people wondering why there is “so little price inflation†in spite of all the money printing and the huge credit expansion of recent decades, rest assured that there is actually plenty of price inflation – you only need to look for it in places other than consumer price indexes. And frankly, consumer goods price indexes are heavily skewed downward by electronic gadgetry, while many or even most of the necessities of life have actually exhibited rather impressive price increases.
