The Financial Crisis and the Visual Arts in Australia

To suggest that the current world wide recession is not going to affect the "average" Australian is clearly wide off the mark, but the media's pre-occupation with grim stories of doom and gloom contribute to a feeling of pessimism and often generate a self-fulfilling prophecy.

Although there are predictions of unemployment of possibly 7% percent, and certainly those losing their job will face considerable hardship, on balance one must not lose sight that 93% percent of people currently employed will remain in the workforce. Parallels with the Great Depression of the 1930s are unnecessarily alarmist, as at that time unemployment levels stood at 25%.

Without a doubt, in the short term, many people will feel the economic downturn and many people will have to adjust to a period of restraint and even hardship, especially if they are part of the 7% percent unemployed.

After more than a decade of unsupportable worldwide boom conditions, a correction was only to be expected, although perhaps the speed and the severity of the correction were not anticipated.

Over the past decade, there were excesses by many businesses and individuals, and greed overtook common sense in far too many cases. Nevertheless, the Australian economy is basically sound, and, with a few exceptions, our banking system and our general economy does not appear to be as vulnerable as those of other Western countries.

How does this economic downturn affect the Australian art market in general and Australian artists in particular?

The art market cannot be thought of as a single monolithic structure. It has all the complexities that one would associate with a huge multi-million dollar industry, and different parts of the market have been and will be affected differently by the economic decline.

Broadly speaking, we can separate the Australian art scene into two major categories:

  1. The Primary Market, being predominantly commercial art galleries, together with a few dealers and consultants.
  2. The Secondary Market, dominated by auction houses and supplemented by a few investment art dealers, superannuation consultants, and the like.

The Aboriginal art market, because of its size and peculiarities stands to one side in its own peculiar network of indigenous community outlets, commercial galleries, auction houses, dedicated dealers, and consultants. However, by and large, it also falls into the same categories.

The Primary Market
Over the past decade the primary art market has experienced a healthy growth with an avalanche of new artists, plethora of glossy art magazines [many strongly promotional in tone], a number of new buyers, quite a few new galleries entering the fray, balanced by a number of other galleries retiring, mainly through generational process of self-attrition.

Many artists have experienced a reasonably good run, particularly young emerging artists, and there has been a slow but gradual consolidation in the reputation of established artists. Some so-called mid-career artists, however, have not fared so well.

To date, the impact of the recession on the primary market has been limited, and in no sense has this market collapsed. Generally good art by recognised artists has continued to sell well in Melbourne, Sydney, Brisbane, and Canberra. The less well established artists have had some difficulty in achieving sales over, say, $10,000, although sales of original prints, graphics, and smaller paintings have experienced, if anything, a modest growth in sales.

There is evidence that some previously over-promoted artists, surrounded by media hype and with prices which appear to have been higher than the market accepted, have seen their sales deteriorate markedly.

The Secondary Market
It was interesting to observe the first rounds of auction in the past few months. In the second half of last year, auction houses had been showing signs of strain. In part, this was due to the lack of high quality stocks to maintain the frequency of auction sales [there are approximately 30 major auction sales a year].

Over the last couple of decades, there has been a marked shift from the "art collector" to the "art investor" and the "art speculator", and it is without a doubt that the auction houses, with their sophisticated infrastructure and marketing experience, have been instrumental in promoting art as an alternative investment.

They have been to a large extent assisted by the Australian Taxation Office's recognition of art as a legitimate form of investment, and its acceptance that even superannuation funds can invest in art (naturally, subjects to the normal prudent investment guidelines).

Fuelled by the hype and the publicity that auction houses generated, many investors and speculators invested heavily in art, paying record prices, only to find that over the past year, when they wished to resell their works, the buyers were not there, and the value of their art portfolio has shrunk considerably.

In many ways, the secondary art market resembled and followed the direction of the share market. Those who could afford to sit on the works, did so, and those who were financially strapped and forced to sell, incurred losses.

It is considered, that the economic downturn will affect the secondary art market to a larger extent than the primary art market.

Collectors and investors, faced with good quality works, at reasonable prices, will continue to buy art (and usually in the Primary market), whereas the speculators, having had their fingers burnt, will be more reluctant to return to the fray.

The Impact of the Economic Downturn on Artists
Without a doubt, artists like the general community, will all experience and feel the impact of this financial downturn. However, in most instances, the impact can be managed and the negative consequences can be minimised by employing several strategies, in addition to tightening their belts.

Suggested strategies are as follows:

  1. It is suggested that artists consult their Accountants or Financial Advisors to put in place contingency plans for, say, the next two years. It is suggested these advisors be instructed to prepare a budget of expenditure, which would include:
        • Art Materials;
        • Studio expenses;
        • Mortgage repayments;
        • Personal expenses.

    Due to the uncertainty of the art market, there is a possibility that artists' incomes could decrease considerably As a worst case scenario, it is suggested that artists estimate their sales conservatively and that for the next 12 months forecast their income at only 50% of their previous year's sales.

    In many instances, the difference between anticipated income and budgeted expenditure will create a deficiency.
    We suggest that the artists, who do not have the reserves to cover this deficiency, but have equity in their property, or some other security, approach their bank to provide a facility to cover this deficiency.

    We do not suggest that artists actually borrow the money, but that they arrange for their banks to put a facility in place, in case it is needed. In these circumstances, with the exception of the facility fee, interest is only paid on the overdraft that is actually used from time to time.

  2. Observation from exhibitions and reports from galleries and artists over the past months, suggest that with the exception of some well established artists, sales in excess of $10,000 for individual works are becoming more difficult to achieve, whereas many more sales are achieved at lower prices.

    When planning exhibitions, artists should consider the inclusion of a number of smaller and less expensive items to compliment their major pieces.

  3. It is essential for artists to continue their dialogue and relationship with their commercial galleries. Artists should avoid the temptation to by-pass their galleries and resort to studio sales to the public at wholesale prices. This can have long term consequences and impact on the prices of the artist's works for many years to come.

While it may sound like a euphemism, not to view the recession as a crisis, but as an opportunity, this could provide artists with a bit of time to reassess their work and their direction, and to embark on new projects, which could come to fruition when the situation improves.

© Tom Lowenstein, 2009

Date posted: June, 2009