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On housing bubbles

  • 01 September 2023
Australians are starting to default on their mortgages, a recent story in the ABC reported last week. With last year’s ratcheting increase in interest rates, and thousands of people coming off their fixed rate mortgages this year, monthly repayments for many has suddenly ballooned. The homeowners feeling the financial whiplash of mortgage stress most acutely tend to live in non-affluent areas. For these people, times are tougher financially now than in living memory. 

It’s a crisis a long time in the making. Ten years ago, I worked at a digital media agency, and I’d spend a good portion of every week writing about property in Australia for one of our clients, REA (Realestate.com.au). Back then, for even the casual watcher, the storm clouds of the current housing crisis were looming.

At the agency, I’d spend a lot of time scrutinising industry trends, speaking to agents and industry representatives. This was in 2013, and there was an atmosphere of almost palpable fragility. Don’t speak too loud about the property bubble because you don’t want to jinx it. It wasn’t a boom, it was robust, it was resilient, it was buoyant. Healthy words. 

I spoke to hundreds of agents, most of them chipper if not downright jubilant that the nation was floating atop a market that was immune to the shocks typical of other sectors. ‘The market is due for a significant correction,’ one agent said in 2013. ‘Has been for five, ten years now.’ The brave ones would talk about a market that was, at minimum, 50 per cent inflated. But don’t call it a bubble. 

The Australian property market is arguably a bubble, where over the last 30 years, house prices have risen strongly relative to incomes and relative to inflation. Yet it defies the standard rules that apply to bubbles: namely, it doesn’t pop. Making it a great place to park your money.

A man’s home was his castle, now it’s also his portfolio. At some indistinct point in the last three or four decades, housing changed from something essential into a commodity and a wealth-generation opportunity driven by profit motive. It’s not necessarily deliberate, but rather the result of a taxation system where it’s safer to invest your money in property than elsewhere. [Your average owner-occupier mortgage holders might find this difficult, generally handing over around 40 per cent of their net income to banks. For many, it’s creeping as high as 70 per cent. You’d be