Bringing down housing prices. By Robert Gottliebsen in The Australian.
Australia is attempting to cram approximately 11 million households into 10 million homes. It needs between 250,000 and 300,000 new dwellings a year, but in 2025, building starts came in at only 196,000.
Australia now has the highest level of mortgage stress in the developed world. Sydney households need 62.6 per cent of income to service a new mortgage. …
A major problem is banking policy:
Australia has too much household debt, with banks that have lent too heavily into mortgages and too cautiously into the construction sector that would relieve the housing shortage. ,,,
APRA’s capital framework treats residential mortgages as less risky than commercial and development lending, so banks drive mortgage lending hard while rationing development finance.
The result is a system that simultaneously inflates demand through abundant mortgage credit and constrains supply through tight construction lending. Australia has by far the largest proportion of residential mortgages as a share of bank assets of any comparable country.
Generous mortgage lending, set against the few homes actually being built, inflates the price of existing housing. Inflated values then justify still larger borrowings. …
Why don’t the banks lend enough money to developers?
Bankers demand fixed-price building contracts before they will lend. Builders are then forced to take the rising cost risk. Once again, builders have been caught between fixed-price contracts signed before recent cost spikes and the much higher costs of actually delivering them. This is a direct path to insolvency. …
When the Australian Government boosts the money supply with low interest rates and more, as it did during covid, it boosts CPI and building costs. This sends developers broke, because they have fixed price contracts. What developer wants to risk that again?
A building development only proceeds when the expected revenue exceeds the full stack of costs: land, construction, holding and finance costs, and a margin large enough to compensate for the risk being taken. …
Housing starts will not increase materially because the conditions required to unlock a significant increase in new dwelling supply (developer confidence, accessible finance, affordable construction costs and a skilled workforce) are all deteriorating simultaneously. This creates a supply problem. …
This has been further exacerbated by a very high rate of immigration. …
It is little wonder that our hospitals, schools, roads and ambulance services struggle to keep pace. Dwelling supply has fallen well short of the new demand.
A growing majority say house prices have to fall. Even owners. By Shane Wright in The SMH.
Sixty-one per cent of people supported a decline in property prices, an exclusive Resolve Political Monitor Poll has found, with a majority of every age, political and income group agreeing that prices were too high.
On the property market, money is exchanged for housing. It’s not just the supply and demand for housing that matters, but the supply and demand for money. It’s symmetric.
But the role of money is never questioned in the media, so people overlook it. Australian dollars are a commodity, just like any other, except they are manufactured by a monopoly of banks and government. Easy money since 1982 has driven all asset prices to the moon, because there is a glut of money. It took 20% interest rates in 1980 to bring the last bout of inflation under control, but debts were much smaller then. What government can afford 20% interest rates today?
It’s nice to see recognition that nose-bleed housing prices are socially harmful, and that a general consensus is developing that they need to be brought down. But unwinding a bubble in a controlled fashion is difficult.