Financial types aren't known for their boxing prowess. But economist Saul Eslake took to the metaphorical ring this week and, with straight lefts and right hooks, beat Australia's housing policy to a pulp.

His speech on Monday was called 'Fifty Years of Housing Policy Failure'. Two things that copped it in the jaw were the First Home Buyer's Grant and negative gearing. At the end of the bout, one thing was clear: the percentage of Australian home ownership is down since 1961, despite staggering amounts of money and legislation being thrown at it. And anyone waiting for politics to solve the problems associated with Australian housing will find themselves waiting another fifty years (or more).

We'll let you see what he had to say if you're so inclined. For our purposes in today's Daily Reckoning, it was Eslake's opening remarks that really caught our eye. He introduced the speech by citing the economists Henry George, Adam Smith and Milton Freeman. These poor gents are all dead now. But at some point in their lives these men all supported the idea of a ('least bad') tax on the unimproved value of the land.

That's exactly the line of thought Phil Anderson comes from. If you're unfamiliar with Phil's work, he's gone on the record predicting a US real estate boom that could take Australia with it. But it's the question of who gets the economic rent that is central to his argument that US real estate moves in big cycles. Throw in the credit creation of fractional reserve banking and, he says, you have a recipe for repeat booms and busts.

Take this from his book The Secret Life of Real Estate, written before the US housing market fell apart:

'Governments will be taking strenuous action to stop land (house) prices from declining. All sorts of remedies will be proposed: mortgage relief, debtor relief, shared equity schemes, government building more "affordable" homes, tax handouts, stamp duty offsets and reductions, bank bailouts, printing money - anything so long as that damned land price stops collapsing. These schemes are necessary only because the land price was permitted to capitalise in the first place.'

Phil called the bust and is now calling the boom. It's a provocative idea. He sat down with Dan Denning, the DR's long standing and chief housing bear, in a free webinar that went live this week.

Suffice to say Phil and Dan do not agree on the housing market. But they've found some common ground when it comes to the outlook for agricultural commodities and food prices.

'We have a situation at the moment,' says Phil in the webinar. 'I think it's a world first, where the world is seeing record harvests of grains, wheat, corn, and soybeans, and prices for those commodities have gone sideways at high prices. I find that unprecedented. So what that means is if in 2014 or 2015 we get harvests that are even remotely poor, it could skyrocket food prices on futures markets in the US.'

Dan picked up the trail in the latest issue of the The Denning Report on how some of the emerging markets will have to reckon dangerously with falling currencies, high oil prices and bleeding foreign exchange reserves. Dan argues that could mean bread lines and civil unrest overseas back in the headlines. They haven't been put there yet, of course, but there's been two price spikes in the last decade that did.

Source: Food and Agricultural Organization

You can see in the chart above that food prices have come down somewhat alongside the general commodity sell off since the high in 2011. But any price spike could put them back in the territory of all time highs of the last twenty years. Prices that high caused a food crisis in 2007-8 and were part of the spark for the Arab Spring a few years later.

Mind you, high food prices would hurt food importing countries but do make farmers happy. In Australia, these are the men and women we're told can turn the country into a 'food bowl' for the hungry middle class of Asia. But will there actually be any farmers to take up the challenge and bring on this supply?

Maybe not many if The Australian is on to something. Last Saturday it ran a story about Woolworths giving away scholarships to 25 budding ag students. But some of the facts and figures of the article describing the industry aren't encouraging. The age of the average Aussie farmer is around 52. The national working average is 40.

The percentage of younger farmers is in decline. In the five years to 2011, 11% of all farmers, around 20,000, quit the land. The national demand for agricultural graduates is only 1000 but there aren't even enough students to fill that many positions. According to commodity guru Jim Rogers, the age profile of farmers isn't much better on a global basis, nor is the amount of young blood coming onto the scene. He's sounded the alarm about food prices for some time now.

Rogers' International Commodity Index is up around 250% since it began in 1998. It's interesting to note that of the three sub-components of the index (metals, energy, agriculture), the weakest performer has been the agricultural commodities thus far. Their prices are more depressed on a historic basis than, say, oil or gold or copper. They might yet prove to be the tail end Charlie of the commodity boom.

The takeaway for investors is inflation in agriculture looks benign right now. Whether it will stay that way is very much open for question.

Regards,

Callum Newman+

The Daily Reckoning Australia