Australian housing crisis - coming soon!

Australians are hurting. It’s been the elephant in the room for years now but only in the last months has it become really obvious on the ground. I live in Australia and property is a religion here. Like any religion, people act based on faith. Faith that prices will always rise and faith that jumping into a mortgage and committing the next few decades of productive labour to a morally bankrupt financial institution is the “right thing to do”.

The decline of Australia’s post-GFC mining boom set fire to a housing bubble with no equal in history and that’s left a generation of people in an affordability crises. For some reason however, we can’t talk about it. Try to explain to the typical Aussie that February’s Hedonic Home Value Index saw capital city house prices rise by a weighted average of 1.4% in January alone with a year on year increase of 12.9%, the fastest since mid-2010. Raise the fact that the last December quarter saw the eight major Australian cities jump by 8.9% and 4% for house and apartment prices respectively. You won’t be invited to the next Sunday BBQ.

Main stream media such as the Australian Financial Review and the ABC are now unable to turn a blind eye to the situation and have begun a discussion. The numbers are sterile however; the observations are real. Just this evening I inspected an acreage property advertised for rent in a suburb south of Brisbane. I was the only one in attendance. It was expensive at AUD715 (USD532) per week and the agent mentioned that it had just been purchased by an interstate (read Sydney or Melbourne based) investor for the sole purpose of renting. A red flag. Sydney and Melbourne prices are now obviously so stretched that people are purchasing properties “sight-unseen” in neighbouring states in the hunt for yield and the endless pursuit of property (debt) acquisition.

In the last months, I’ve been attending property auctions and open homes in Brisbane and have been alarmed at the prices being asked for utter junk. What I could only describe as “maintenance liabilities” are being offered for ridiculous prices and what’s more, vendors are so over-confident that properties are often unpresentable or even illegal when displayed. Many constructions are not council approved and one property had over 2 acres of junk (including engine blocks, fridges, electrical cables, holes, dirt, radiators and other waste). In one instance I was bitten by the owner's dog when inspecting a property for sale and the agent could not have been less concerned. Another buyer would be just around the corner, right?

To make things worse, lending institutions have been raising rates out of step with the RBA which will push overly indebted households over the brink. This on-the-ground experience tells me that we are precariously close to a monumental market correction but everyone is asleep. I fear that the consequences will be felt for generations.