It seems like the trend of the last ten years as to federalism continues.
The feds back off and starve funding to the states for infrastructure in favour of middle class welfare, cosmetic "surpluses" and other populist eccentric defence and bizarre social engineering experiments, including in exotic offshore places like East Timor, the NT and the Solomons.
The states struggle under the burden of of an economy based on exclusivism and Fed exceptionalism; expressed through apparatus like "competition policy". When the inevitable market or/and systemic failure(s) occurs the state governments become useful scapegoats for the feds and their media urgers, intent on protecting vested interests from high finance intent on maintaining their right to feed off the system.
But momentum for the states to improve their game dissipates, since they can easily blame the feds and "market forces" for lack of initiative. All they have to do is yield to local big finance to allow "Market Forces" to operate in their locale and they'll get media suport also.
Qangos etc are stacked with cronies of whichever political group is in federally or locally- and the result is gridlock, reinforced because desperate voters will not vote out incompetent state ALP governments for fear of untramelled Howardism and Howard is like wise entrenched, to counter act the ALP states
The end result is perfectly conforming to/of neo liberal ideology- Gridlock, immense wastage and the collapse of the social project.

Costello is still arguing that the soaring prices for first-home buyers was a supply shortage. Large tracts of surplus government owned land could be released for development.

No mention is made of the eight interest rates rises since 2002 contributing to financial stress.

As pointed out by Ken Davidson in The Age this week, the government (and Labor) won't fix housing affordability because of the feeling of wealth existing home owners/mortgagees feel, and how this keeps up retail spending.

About a year ago, The Economist pointed out that Oz had one of the worst housing bubbles in the world, and looking at houses in the light of a Price/Earnings ratio (like you would making other investments), houses are overpriced between 55-75% or rent is 55-75% too low. A correction is political dynamite.

Microeconomic analyses (here) show that increasing the nominal value of a house increases spending by 9% of the increase, versus %4 of the value of stock prices. With housing prices up 140% in a decade, inflated by housing bonus issues by federal and state governments, you have to look at the contribution to retail spending and GDP in the light of spending encouraged by "increase in book value of fixed non-fungible assets", something frowned on in usual accounting practices.

With the necessary correction for affordability and to avoid ugly headlines about dramatically increasing mortgagee sales, comes the risk of bad figures for the economy (even if things are actually being put on a better long-term footing). As stated here in The Economist:

These direct consequences of the housing bust will slow the economy. Whether it is dragged into recession depends on the indirect effects, particularly how consumers react. And that is where the real controversy lies. Pessimists argue that a housing bust will sharply crimp consumer spending. More important, Americans will feel less wealthy if their house prices tumble. Nor will they be able to use their houses as giant cash-machines, financing their spending by withdrawing the equity. By some estimates, half the equity money cashed out of homes is spent.

Dave,
That last sentence in the Economist quote- is very apt in Australia. Consumers are now able:

"to use their houses as giant cash-machines, financing their spending by withdrawing the equity. By some estimates, half the equity money cashed out of homes is spent."

They are running down their capital to fund their spending binge. The amount of money on credit card must be enormous.

The binge is odd because my understanding is that most Australians have insufficient savings to fund their retirement and, presumably, they will have to rely on the aged pension to supplement their superannuation.

Dave,
I missed the Kenneth Davidson article in The Age this week. Thanks for the reminder. I see that he argues that the Coalition's policy reponse to mortgage stress is flawed:

The Coalition's response? Blame shifting: the states are at fault because they are not releasing enough land on the urban fringe of the major capital cities. Rubbish. In 2005 the Bracks Government rezoned enough land from rural to urban development on Melbourne's urban fringe to satisfy 25 years' supply — at a wasteful gross density of 10 dwellings per hectare. People don't want to live on the urban fringe, especially as there is no civilised, inexpensive method of getting to the city, but they cannot afford inner-city housing.

He's dead right. The fundamental problem is one of access to the amenities that alleviate the stress of big cities.

It is the increased demand for fixed supply of well-located homes — near our CBDs and/or the coast — that have increased the price. I was in Middle Park Melbourne on Tuesday and I was informed the price for single fronted semi detached cottage was $800,000 whils the good double fronted houses were around $3-4 million.

Davidson rightly says:

Living in the outer suburbs and the urban fringe would be much more desirable if services, especially public transport, were improved to be equal to that available in the inner suburbs. But the Bracks Government has a preference for toll roads and tunnels financed by private public partnerships instead of the cheaper and more sustainable rail alternative.

It is the same in Adelaide. So I live in the inner city --CBD--and stagger under the fortnighlty weight of a big mortgage.

Gary,
Howard and Costello's talking points are low unemployment, economic management, being the best friend the Australian worker ever had, the war on terror and national security.Running the economy is serious business and you need a professional team etc etc These are seen to be the Coalition's strength. They are so good that at running a trillion dollar economy that the dollar is soaring and the drought is breaking.

The everyday economic reality for many ordinary Australians is that their lives revolve around the prices they pay for groceries, health and child care, education, petrol, utilities such as electricity and water, and mortgage repayments.

These are increasing ---the grocery prices in supermarkets and vegetables--and the duopoloy of Coles and Woolworths is a problem.

When John Howard and Costello talk about record jobs growth, economic management, keeping inflation low and the commodities market,there is a disconnect--the battlers say why aren't we better off? Why are we struggling? Why do we have to watch every penny?

They know that the same shop keeps costing more and more all the time.

Something doesn't quite add up.

Nan,
the ones at the top end of the salary ladder never had it so good...not those at the bottom. Or even in the middle probably.What comes into the foreground is inequality created by the free market.

I would have thought that many battlers in Sydney would also be suffering from the cost of higher interest rates on their mortgages and capital loss from declining house prices. This effect of the property bubble burst in 2004-5
is snot a good place to be in. That's real mortgage stress .

Meanwhile the house prices of the top end in Sydney continue to rise and so rub salt into the battler's wounds.

Maybe this is one good reason why the Coalition is in such trouble in NSW.

Gary,

I don't think this is really a free market thing, but rather a reflection of a somewhat rigged game. Examples of this include:
* Slow processing of development approvals by local government
* Restrictive zoning and land release
* High infrastructure charges for new land releases
* Restrictive covenants on new subdivisions forcing more expensive housing
* Vested interests at all levels of government - does any level treat property ownership as a conflict of interest in the same way that share ownership is?
* Tax deductions that allow landlords to pay double what an owner-occupier can afford.

We are now on the way to seeing home ownership become something some people inherit. Indeed, there are some commentators suggesting that there is no problem because grandparents and parents will help their kids. Laughable!

There is also the false line that removing negative gearing would automatically force up rents. That assumes that vested interests continue to artificially support property prices.

We are a very stupid society to believe that high property prices are good.