Interviewed on CNBC in the US this week, was Joe Hockey, our new Treasurer. What a relief it was to hear that Australia has the largest houses in the world, and that their owners spend more to renovate and remodel them!
He didn’t mention that Australian housing is also arguably the highest-priced housing in the world … and that Australian homeowners spend higher proportions of their income to pay their mortgage, than homeowners in other advanced economies.
Hockey remarked that commentators, especially overseas commentators, who predict an Australian housing bubble simply don’t understand our market. Australia’s housing market is different, he said.
It is indeed different. Australian homes typically cost 6 to 10 years’ income of the people who live in them, compared to 2.5 to 5 years in other advanced countries.
Whether there is or will be an Australian housing bubble perhaps depends more on the answers to questions like:
- How long can people continue to afford giving 30% to 40% of their income to their mortgage lender?
- With global uncertainly, how long will Australian banks continue to be able to roll over their offshore debt, which funds much of the mortgage and housing market?
- As the ‘baby-boomers’ retire, who will buy their over-sized and outmoded houses, built in the 1980’s and 1990’s?
- As average land sizes continue to shrink, and homes are built ever closer together, how long before the ongoing, chronic, low-level stress of ‘living-too-close’ causes people to react in ways that degrade the social structure?
- If more and more first-home buyers cannot afford to buy that first-home despite government incentives, what might happen to house prices at the lower end, then upward through the market?
The status quo will probably continue, because there are so many vested interests at stake. But let’s not imagine that economics somehow works differently here, and Australia is immune to downturns.