The New Daily

Australia’s house price madness is getting worse

ANALYSIS: Australia boasts the second-most unaffordable city in the world, and all other capitals are ‘severely unaffordable’. Time for policymakers to act, perchance?


Home ownership is now out of reach for many. Photo: Getty

In the ongoing debate over Australia’s ‘housing bubble’, the annual Demographia International Housing Affordability Survey causes plenty of arguments and a few burst blood vessels.

The survey looks at cities around the developed world through the lens of the ‘median multiple’ – that is, the median dwelling price divided by the median income in that area.

Critics argue that such a simple metric overlooks things such as the quality of dwellings in a city, interest rate levels, and long-term changes such as the rise in female workforce participation.

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The survey’s supporters, on the other hand, praise it for cutting through self-serving arguments made by the real estate and finance industries and too often repeated by media outlets who rely on those same industries for advertising revenue.

Whatever your view, this year’s edition offers a sobering analysis.

The survey points out that historically, houses in the cities studied were three or four times the median income, but that ratio has leapt in many markets well above the survey’s definition of “severely unaffordable” – anything above five times median income.

On that measure, yet again, all capital cities in Australia are severely unaffordable.

However, as the chart below shows, an interesting pattern has emerged in the past 10 years. Adelaide, Hobart, Brisbane and Canberra have hovered around the six-times-earnings mark, while Sydney, Melbourne and, to a lesser extent Perth, have seen a big divergence between incomes and house prices.

demographia house prices

Sydney, at 12 times median incomes, is the second-most unaffordable city in the world. Only Hong Kong, at 19 times incomes, is higher.

Both those markets have been considerably buoyed by money flowing out of China, as that nation’s nouveau-riche attempt to store their wealth out of reach of any economic collapse at home.

That China effect also causes a few arguments in economic circles, because although the Chinese government is trying to restrict ‘capital flight’ from the country, wealthy people tend to have many means at their disposal for circumventing government barriers.

Economist Saul Eslake recently told The New Daily that bearish Australian economists are getting this aspect of the Australian housing market quite wrong.

The apartment construction boom of the past two years has been funded, heavily, by Chinese money. Offshore buyers are not allowed to bid for existing homes, but are perfectly entitled to invest in off-the-plan new ones, and have played a significant role in funding the apartment boom.

What people have not appreciated, says Mr Eslake, is that even a large decrease in the number of such dwellings being built would leave that industry operating at levels much higher than in the preceding decade.

Pop goes the market

So the ‘bubble’ prices that seem so obvious when looking at the chart above don’t necessarily have to ‘pop’ in the way prices did in California, Spain, Ireland and elsewhere during the global financial crisis.

auction board

Expensive homes point to an uncomfortable truth about Australia. Photo: AAP

That is not to say they won’t – just that what we could be witnessing is a long-term flow of foreign money into the country that prices everyday Aussies out of the market.

If that is the case, Australians will feel for the first time the same frustration that a local family in, say, Bali feels – priced out by wealthy foreigners.

In the language of economists, houses, townhouses, flats, shacks and shanties are ‘substitute goods’. If you can’t afford the one you want, you’ll take a slightly cheaper substitute.

So whether you’re in Bali or Sydney, if foreigners pour money into off-the-plan apartments they increase the stock of possible substitutes and, as the old saying goes, a rising tide lifts all boats.

The moral of the story

What this report tells policy-makers is very simple, then.

While the issue of whether or not a bubble is about to burst is an open question, what we do know is what these extraordinary price levels do to the lives of the families and individuals who have to live in such expensive houses.

bondi beach

Sydney house prices are 12 times median incomes. Photo: Getty

As the report notes, “securing a standard of living for younger people that at least equals that of their parents and facilitates upward mobility for all must be a principal policy priority”.

When economists argue about the causes of spiralling house prices, one will point to lower than necessary interest rates, another to the influx of foreign money, another to artificial constraints on land releases, and another still to the tax treatment of primary residences and investment properties.

But whichever you think is the most important factor, the results are the same – severely unaffordable homes that are putting too many young Australians under financial stress.

If the Demographia survey is an over-simplification as its critics claim, perhaps we need a few more such over-simplifications to get a simple message through to Canberra – Australian homes are not primarily there to make speculators rich, or to store the wealth of foreigners, or to help cunning investors avoid paying tax.

They are supposed to be there to live in.

Read more columns by Rob Burgess here


  • Cindy

    This problem has been building for years. Shame on the government for being greedy and shortsighted. Protection for Australian future generations is needed NOW

  • Taxmemore

    Good article Rob Burgess.

    Especially your closing, cutting remark,

    “If the……..survey is an over-simplification as its critics claim, perhaps we need a few more such over-simplifications to get a simple message through to Canberra –
    Australian homes are not primarily there to make speculators rich, or to store the wealth of foreigners, or to help cunning investors avoid paying tax.

    They are supposed to be there to live in”.

  • This is the Howard legacy.

    • Bev Head

      This is a Howard legacy? I must have dreamt that a labor government (of sorts ) followed Howard. Both sides of government are equally to blame for this disaster, another example of how useless our politicians are on ALL sides. So where does the eminent useless Shorten stand on this subject, who knows and who cares.

    • Joe

      Yep, good ol’ John kept on trying – till he found a national character flaw he could exploit for votes – that Aussies love nothing more than a gamble – as long as you make them feel like they got a steal (and steal it they did, from their kids and others) – they were gonna vote ya in forever if they could.
      What remains to be seen is who gets to unwind the ponzi – collapsing prices or the collapsing dollar.
      (And if the latter – the fun of blaming the foreigners is only starting – look, they are buying because we run our own currency into the ground, and so now we’re the laughing stock of Asia, but it must be their fault!)

  • Joe Harvey

    All the complicated discussions about property prices are irrelevant. It only takes one thing to change our market. People will go to where the jobs are. Move jobs from Sydney and Melbourne to Wollongong, Newcastle, Perth, Adelaide etc. We have so many beautiful places to live in, if Government would just give incentives to companies and individuals to establish themselves or live away from crowded cities, a lot would change. Foreign investment in truly new housing is not a bad thing if it increases supply, but all the BS loopholes like students being able to buy existing houses etc. should be scrapped until things normalise. Plus we need to invest in our railways and high speed rail links at some point. Create nice hubs for our young people to work and live in, and our kids could have a future again. And it would align nicely with Maclolm’s IT initiatives. Why not create innovation hubs with tax incentives to set up business, work and live in satellite towns or cities? Also, we are looking at a new world, I am confident that the youth of today who are finding ways to do all manner of things differently (Uber, Airbnb etc.) are going to find ways to avoid spending their whole lives paying off a mortgage for a residential house in Sydney or Melbourne. We are not like say London. Australia has lots of space, and lots of beautiful areas within a fast train ride into town. Everyone focuses too much on interest rates, tax policy and the like. Lets move jobs and improve rail links. The Chinese would probably do a lot of this for free in return for property development rights in some of these new hubs.

    • Dean Collins

      Agree Joe !!

      Until Australians decide to be more than a two city country (Syd/Mel) then its going to be expensive to live there.

      People need to move to Nowra, Bathurst, Newcastle etc (and be cool with living in other cities) until this happens……be prepared to pay top dollar to buy and rent.

    • Joe

      Ah, but moving jobs from Sydney or Melbourne would touch the holy cow that big property prices are – and make no mistake, your greedy dumb Australian secretly hopes his property goes up in price – so he can cheat on all the smart folk he can’t outdo otherwise.
      Howard saw that and capitalised on it – and was perpetually elected to allow the average Joe Blogs to become a millionaire – based on nothing more than (seeing sea) froth.
      Now that we’re in front of asking hard questions, this will become easily apparent – it’s just that Australians would never admit they got the cheating they were after – it is so much easier to pin this on the largely (irrelevant) Chinese.
      Immigration can be reduced tomorrow – so can property prices – but would greed want that (and yes, Australia prefers greed to sense)

  • Andrew M Potts

    This problem is not going to solve itself from the inside. Our Federal Politicians own on average 2.5 properties and hold a combined property investment portfolio worth $300 million. They have a vested interest in not addressing the problem. That is why the Affordable Housing Party is joining forces with the group Renters First to raise Australia’s housing affordability problem at the next Federal Election. Find us on Facebook and join the party today for free.

    • Steve CheapSausage

      Then all of these politicians should abstain from voting on any such issue, and they should proclaim it loud and clear on first opening their fat mouths re this issue.

  • Bev Head

    What!! Australia has a housing cost inflation helped along by Chinese buyers. Well spotted Rob! In the 2014/2015 financial year Chinese investors and owners spent around $12 billion on Australian property.
    Now $12 billion (and rising) has a huge effect on the price of Australian property, mainly Sydney and Melbourne. This has an enormous impact on inflation. Ok it affects the cost of housing a local Australian either working or the homeless or on welfare, but it also affects whether a government can afford to buy property for future development for projects such as widening Parramatta Rd or building new freeways. Increasing the cost of putting a roof over your head, either buying or renting, has an enormous affect on inflation, but not included in inflation figures.
    Australia is not the only country affected by the Chinese property investors. Canada has just scrapped their Chinese visa scheme.
    Obviously the Canadian government are smarter than ours, not very hard.

    • Joe

      yeah, Chinese paltry 12 billion vs total value of what, a couple of trillion?
      Sure, blame it on the Chinese – so much easier than your mom or dad or the neighbour, isn’t it.
      How about you ask them to drop the prices and see what they tell you?
      But but but, we’ve deserved – well, grabbed, this – now it’s ours – go blame the Chinese some more if you need to vent out a bit, we like our millions thanks very much.
      Foreigners mostly work in the relatively bad jobs in Australia – be real for a second.

  • Dean Collins

    lol someone what to break it to the xenophobes that Asians arent actually buying that many properties in Australia and thats not why Australian property is expensive……..

    sad xenophobes 🙁

  • Steven

    Bravo. Well said Rob Burgess.

  • Joe

    But it isn’t the unscrupulous developer, realtor or alike – your average Aussie loves the game of getting something for nothing, and no, no brains will convince him otherwise (sort of American style insistence on ignorance winning as long as I get to profit from it)
    The country used to be semi socialist – more than semi – 20 years ago, that’s where the fair go comes from – but no sphere of the society wants that now, everyone is after return on investment (without ever actually investing any time or energy of course – only thin paper money lent by the banks – which we’ve been told we’re entitled to, and we want the proceeds to keep flowing – to me because I am smart and I invested like the newspaper told me to – those prices now must double as a matter of policy – engineer it Tony, if not we’ll bring the next guy, and if not him the next one yet…)
    The system of values is collapsing – the property will just follow.

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