Is there a property ‘bubble’?

//Is there a property ‘bubble’?

There has been much public debate recently about ‘bubbles’, ‘booms’ and pending ‘busts’ in the Australian Property Market. With mass media running headlines based on overseas (and some local commentators saying we’ll see prices drop by 30%, Australian property market experts can hardly get a word in.

So, what is the truth and where is property going in Australia and here on the Sunshine Coast over the next 10 years?

In response to the proposition that there is a housing bubble in Australia, they said ‘…in the absence of a major economic downturn, a critical shortage of housing (in Australia) will see house prices and rents grind ever higher and housing affordability and availability will become major social and political issues in the decade ahead. Even with a projected slowing in population growth … there is no panacea (all encompassing solution) for this condition.”

Now the ANZ Bank is not exactly an entrepreneurial risk taking organisation so why such a bold statement that contradicts so strongly the ‘bubble’ theory?. There are four key reasons for this:


The property market is no different to any other market and is driven by supply and demand. The struggle most people have with understanding the undersupply issue is that it’s a relatively new phenomena. In the mid 90s we went from an oversupply of properties to a marginal undersupply. Since that time there has been a significant decline in new dwelling construction while the population has increased dramatically.

The greatest difference has occurred in the last 3 years as has a rapid and dramatic increase in the undersupply. While there is a correction in the rate of immigration underway, this is only trying to bring this down to the long term projections. The major banks, property analysts, the Government, the Reserve Bank and even investment bank Goldman Sachs agree there is a massive undersupply of property around the 200,000 mark nationally. The National Supply Council suggests that if we are able to keep immigration down and increase supply, the undersupply will reach 640,000 by 2039. The ANZ has us reaching an undersupply of 600,000 at the current rate of separation between supply and demand in just 5 years!

Lending Practices

Our strong financial regulation means that loans are only given to people who can afford them. It’s important to note that the top 40% of income earners hold approximately 75% of mortgage debt and the bottom 40% hold less than 10%. Of interest, the majority of loans in Australia are in advance of the required payment and we have one of the lowest default rates in the world. This means that we’re not likely to see a flood of property onto the market based on people not being able to fund them.

Strength of the Economy

Australia’s performance in the last three years is unparalleled by any of the Advanced Economies. While the national unemployment rate suggests we have almost full employment there is a significant skilled labour shortage which will continue to place pressure on wages. While we have a ‘2 speed’ economy with the mining sector performing exceptionally well and the remainder of the economy cautiously improving, the overall strength of the economy means the next interest rate change will likely again be upwards to keep inflation in check. Having a strong economy essentially means that more people have jobs, more people are inclined to come to the ‘lucky country’ and more people can afford to pay their mortgages. It also means that they are more able to ‘compete’ to get the property they want driving prices and rents.


Those who promote the ‘bubble’ theory quote income to house price ratios of 7x or greater. The Reserve Bank of Australia, major banks and a plethora of other experts suggests that property in Australia is no more or less affordable than any other developed nation and the ratio actually sits around 4.6x.

That doesn’t meant that its not getting harder to enter the property market, it just means its not at ‘boom’ ratios. Interestingly, property price growth has followed wage growth 1:1 for the last 7 years. The other key mistake made by outsiders is that they don’t take into account the structural (that means permanent) changes in the economy and control of monetary policy which mean that interest rates (the cost to borrow money and buy property) is now permanently lower. ie. we won’t see 18% interest rates again.

So while we may not see significant increase in property prices over the next few years, the fundamentals of the Australian residential property market are strong and mean that we have a unique set of circumstances not seen in any other developed nation before. Interesting times ahead!