The Phaserl


Australia’s Housing Bubble: In the Grip of Insanity

by Pater Tenebrarum,

Perverse Incentives

We haven’t written about Australia’s residential real estate bubble for some time (readers may want to check out last year’s post “Australia’s Bubble Trouble”, which contains numerous relevant charts and data).

Our friend Jonathan Tepper of Variant Perception has recently visited Australia for a fact-finding tour (more on this further below), so we felt we might as well take the opportunity to write an update on the topic.

Our reader D.S., who has moved to Australia five years ago, has provided us with a number of very interesting observations on the Australian housing market late last year, which we are sharing below. As D.S. notes, there are a number of interesting wrinkles specific to Australia’s real estate market, which outsiders are generally not likely to be aware of. We have highlighted a few passages in his report below which we think are especially important:


“The housing bubble in Australia has been talked about so extensively and has lasted so long without any harm coming to it that people here have pretty much dismissed the very possibility of a crash – including, it has to be said, the chances of a recession. The reason I was motivated to write this note is because there are some (I believe) unique dynamics at play in this housing market, which aren’t necessarily apparent to the outsider – at least, I was never aware of them until I moved here.

Australia has one of the highest levels of home ownership in the developed world and, in common with other Anglophone countries, the home is commonly viewed as people’s ‘primary asset’ i.e. the financial windfall they will one day be leaving to their children. When the property market is hot — as it has been in the past couple of years — people love nothing more than to talk about property values and how well they’re doing. Property developers, meanwhile, are presently building furiously in order to sell into current demand. Perhaps this is all that is propping up GDP growth right now (making the latest weak print all the more relevant).

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