Our " Favella " !

Over a year ago a heartless Sydney city council sent in the bulldozers and ripped down what had become known as the "Wentworth Park Homeless Township ".  The dispossessed simply found a new home in gritty Belmore park, a barren stretch of ground near Central station.

This is now called " Tent city " and the homeless live under canvas or in makeshift covers made from anything they can find that will provide shelter from the wind and rain.  It is not pretty, but one elderly resident is clearly the camp boss and he sets the rules.  They call him "Uncle ".  He takes newcomers under his wing and perhaps because everybody is down on their luck to a similar degree there is a sense of companionship and order that prevails.

Many Sydney commuters view this scene with distaste.  The sight of homeless people is an embarrassment and if they have to scrape together a living it would be better sited somewhere out of the city - not where it reminds decent people how perilously close we all are to financial disaster- and a similar fate.

It is a shock to the system to see people in Greece standing outside closed banks with just a few Euros in their pocket, unable to put petrol in their car or buy food at the market stalls.  Our mail boxes are full of begging letters from various charities - most with heart rending stories.  We know that our women's shelters are turning people away and every night the beds for the homeless are quickly swamped by demand - and many miss out.

Australia has long been called the " Lucky country " and we have a standard of living envied by the world, but it stands on shaky foundations.  The biggest danger is the housing price bubble which sees many people with huge mortgages which would become unsustainable if interest rates rose sharply from their present record low.  It also seems that recessions are cyclical and the most recent one back in 08 certainly spread some misery.   Just imagine the financial chaos if we ever see a repeat of the 1930's and that "Great Depression " ?

The strange thing is that nobody has been able to accurately attribute the cause of the crash of 1929. Just a sudden loss of confidence that saw the share market tickertapes on an ever downward spiral.  Sound businesses closed their doors and rampant unemployment sent millions to soup kitchens and bread lines to survive - and it took the outbreak of the second world war to bring the world economy back to a sound footing.

The sad thing is that the world economy depends on a reasonable balanced flow of goods between countries which can be distorted when trade blocks use trade as a weapon.   We live in an era when ever changing pacts and trade rules bring in artificial trade configurations that upset financial balances and create both gluts and shortages of basic supplies.  As a result, world finance rests on a precarious balance. Malice and self interest can upset this balance - with disastrous results

Any good economist knows that this price bubble in housing can not continue indefinitely.  Wages are not following the same upward curve and an ever increasing population percentage is being locked out of home ownership.  Should the banks tighten credit and demand a higher deposit for housing finance, demand for new homes will slacken and fewer will be built, increasing demand for rental properties - and pushing up rents.

That could induce the government to bring in rent control - and that would be the ultimate disaster. With a cap on rental returns, negative gearing would be completely unattractive and investors would quit the property market in droves.    We would quickly create a huge market segment unable to buy housing - and unable to gain a roof over their heads because of a chronic shortage of rental properties offering.

That is the classical reason that Favellas come into being, and we are seeing the glimmer of an Australian Favella in Tent City in Belmore park.  Sadly, this escalation of house pricing seems to be a world phenomenon - and so far nobody has found an answer to the problem  !