The Great Australian Housing Market Debate Rages On


The Great Housing Debate rages on over at our new Daily Reckoning Forum. We are interested in Australian housing only to the extent that it may be a symptom of the worldwide credit bubble currently deflating. But the mail bag here at the Old Hat Factory is full of letters advising us to quit acting like morons and get in on the action already. Hmm.

It is true that over the last five years, the mineral boom in the West has driven Perth house prices higher by 137%. There’s lots of new money in the West. It has to go somewhere. And people have to live somewhere, don’t they?

Still, the ABS report shows prices in Australian capital cities up by an average of 12.3% year-over-year. The ABS all says that two out of every three Australians lives in a capital city (64%). If you live in Melbourne or Brisbane and are looking to buy a new home, they went up by 20% last year. Buy a house! You know it makes sense.

In other news, the ABS reported 1,862,000 lambs were slaughtered in December. That’s 40,000 tonnes of delicious meat and the highest number on record for 30 years.

Source: Australian Bureau of Statistics

Should you buy a house? Should you sell? Is negative gearing a good thing? Does Kevin Rudd’s new plan to help first-home buyers save a little extra make any sense?

We don’t have any answers to property questions. We have, though, been thinking about lowering our rent here in Elwood by digging a bunker in Coober Peddy, producing some extra income from our opal operations, and resuming our reckoning there. Have your say over at the Daily Reckoning Forum.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.


  1. Not surprised at the interest in Aussie housing. This is the asset bubble that drove the credit surge in the first place, really, and this is where the credit collapse begins first.

    When the US Fed lowered interest rates to 3% in 2001 and 1% in 2002, and kept them low to avoid a mild recession, it began the inevitable series of events that created today’s financial crisis throughout the world. (Generally, and simplistically, speaking.)

    I find it enlightening to watch the housing crisis unfold day by day in the US. I see the same events happening here in Australia, albeit about with about a year’s lag time.

    Anyone interested in the collapse of the credit/housing bubble and the likely series of events here, I suggest have a read here:

    Much intelligent commentary from posters in various financing and housing occupations, albeit a great deal of schadenfreude. Definitely “bearish”.

  2. The most interesting comment I’ve read on this topic is that if housing prices had continued at today’s rate a couple of hundred years ago in Finland, the cost of the average property there would be about as expensive as all the remaining property left on the earth today. The point is that property has always been a percentage of the wealth owned on the planet. When the middle class are starting to struggle with home loans it’s a sign that the bubble is about to burst. Add to this picture Australia’s reliance on the mining gold rush heading for a brick wall, and you have history repeating itself (anyone remember Hill End? 100 years ago it was a boom town).

    Countless people tell me that housing prices never go down, this is absolute rubbish, it is happening in the US it can happen in Australia.

    If you can’t sell your property because no one can afford to buy it or get a loan for it, it doesn’t matter what it’s worth…

  3. your reservations are excellent,the action is hot now , wait until Australia gets a wiff at what is to come,when they are told they are joining the Asia Union. Should Australians buck the system of things, the powers that be in the world will visit Australia with the same taste of what America is getting.Asia Union will entail bowing to a higher set of laws. and might even mean china’s laws ! but it might be Australia’s laws who knows.

  4. i remember seeing a tv article many years ago which found that real estate agents were going to different regions to stand in the crowd of hopeful home “mortagers” and push the bid up a bit. this started in sydney and melbourne. a long time of little “bits” adds up to overvaluation of property and rich real estate agents… ya know i love fantasy stories where certain societies evolve by “killing all the lawyers”, im waiting for a story of a society with no real estate agents :) real or unreal.

  5. Australia is merely a subset of the wider global explosion in asset values (inflation). This will readjust as under performing loans are unwound and asset values fall. Many see rising property prices as virtuous and yet react in horror when other living costs rise. They are one in the same – inflation.

  6. Interesting issues. It’s the same here in London. There is a long way to go with the credit crunce. There’s a lot that still doesn’t make sense. The money supply has been inflated and now they want it all back.

  7. >We have, though, been thinking about lowering our rent here in Elwood by digging a bunker in Coober Peddy, producing some extra income from our opal operations, and resuming our reckoning there.

    Don’t bet too much on it. The supply of dugouts in/near Coober Pedy is scarce and the council are adding onerous red tape on digging/fitting new ones. If the new mines in region come on stream (China story again) then expect prices to keep going up. Good luck with the opals though as they are like gold … the demand (driven by US) has dropped which means fewer miners and the relatively trickle of good stuff coming out will hold long-term value.

  8. Here are just a few issues to be aware of with Australian housing. First, when supply is lagging demand every subsidy for “new home owners” goes straight onto the price, every form of assistance goes straight onto the price. The only “cure” for affordability is to flood supply. But that then depresses value of homes already hocked.
    Second. Real Estate agents or “experts” are yet to be regulated in the way Financial Services Licensees are regulated with detailed plain english disclosure of costs and risks and commissions in formal documents called Statement of Advice. When one area of high level asset selling is tightened up, the “sharp talkers” gravitate to the areas that are not so constrained… eg residential real estate and the financing of it.
    Third. As the “mortgage broker scandal” in Western Australia a decade ago showed, the weak link in any lending is the valuer. This is a normally honourable profession, but if the hot promoters find themselves an unprofessional “compliant” valuer they keep him very busy and “successful”. Overvaluing for loan security then amplifies credit crunch when it comes.
    About 50% of Australian homes have no mortgages on them.

  9. Paul M: I agree with what you say, apart from “The only “cure” for affordability is to flood supply.”

    That is one possible cure, but is it really?

    The problem with affordability is that with easy credit, houses at their current price are still considered affordable. Imagine if no-one could get 100% loans for 35 years, or there were no Low Doc & Sub-prime loans available? Where would these home buyers get their money to buy the houses? The answer is, they couldn’t.

    Also imagine if interest rates were half of what they are, and banks were even more keen to lend: Prices would be even higher. Also try and imagine a scenario where banks would lend up to 800K as Low Doc loans…house prices might go even higher still as people suddenly realise they can afford houses that are even more expensive.

    There are two basic factors at work on these prices:
    easy credit & greed

    It seems harsh to say greed, but people are. People want their very own 4 bedroom house, even though they are not in a position to really own one. Bring in easy credit and then all of a sudden people are given the means to make their badly thought out wishes come true.

    Just like the 17 year old kid who buys a brand new Falcon Ute on credit he can barely afford (lacking strong parental advice) things turn nice and sour when he writes the car off a week later and still has the debt to pay off (assuming no insurance?).
    Besides that being the worst analogy ever, I think a lot of new home buyers are like that 17 year old, with no parental figure to warn them of the pitfalls.

  10. I have only ever taken out one loan (apart from a mortgage)in my life and that was from my father for £50 to buy a motor scooter many years ago. He charged me interest and it took me much longer than I expected to pay him back. Parents don’t teach their kids lessons like that now, as it is the reason that I am totally clear of debt in spite of owning my own house and being a totally self funded retiree. When I was working I never earned more than $20,000 a year, but then I was brought up during the war years and learned a great deal from my parents about budgeting and only buying things when I had the money to do so.

  11. I agree with some of what Pete says above. Greed and envy(I add) inducing eveyone to want a 4 bedroom, 2 bathroom home. With 2 kids of my own, I still can’t see the need for such silly extravagence. Although I felt very sad to see those poor people lose “their” homes on 4 Corners last night, I couldn’t help but shake my head at what they had bought in the first place. From memory they had 2 kids, and yet they forked out at least 650k on a four bedroom, 2 bathroom(one of the bathrooms had a massive spa bath), double garage, 2 level home. What on earth for? I’m sure if they reflect on this, they will realize they they simply tried to keep up with the Jones, and put all their faith in materialism. How sad it was to see the mother crying that they had lost “everything” with a beautiful little girl hanging on her arm. Message to kid “You are (worth)nothing”. As for the house, I would have taken the 610k offered at auction, payed off most of the debts, and worked hard to pay the other 40k. I dread finding out what happens to that family. I’m no psychologist, but the father looked like a suicide candidate. I only hope for their childrens sake they work things out.
    As for fools who took on margin loans getting burnt. Zero sympathy from me. Anyone taking on a margin loan simply hopes to get rich quick, and the risk is always they will get poor quick.
    I don’t know what the answers are for fixing the easy credit availability, but the market seems to be correcting this folly. Left alone to function, I’m sure the markets will correct house prices lower, and make credit much harder to get. But I have doubts the market will be left to function freely without silly government interventions to try and stop it. Unfortunately there is too much vested interest in not letting house prices fall. My bet is the market will win, but it will be a long battle! Cheers, Luke

    Luke Clements
    April 1, 2008
  12. I couldn’t agree more with the previous comment. I felt sorry for the couple but they were victims of their own greed. However what can one expect from a society that encourages rampant materialism as a way of life and govt’s go along with it, terrified that if they preach restraint they’ll be tossed out of office.
    When people cut back on the number of children they have just so they can afford to buy a biger home or have the latest reno’ they get what they deserve. The sad part is that is what they’ve been told from babyhood particularly as mum and dad used tv as a babysitter allowing the poison of consumerism to infect them subconsciously from infancy.
    We have 4 children who never knew of tv until about 5 or 6 years of age. Now married with children only one has tv and that is tightly controlled. Non carborundum bastardum (dont let the b’s grind you down)

  13. Australian housing prices are most certainly a symptom of the credit bubble currently deflating. There is no housing shortage in this country. I offer my parents as an example;

    Selling their house in Sydney two years ago, they bought a beautiful, huge old triple brick monster, on 350 acres of prime basalt country for half the price of their place in Sydney. They were the only bidders at the auction.

    Building a new house of that magnitude today would cost far more than what they paid for the house and the land.


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