DAVID MURRAY: The lending system for housing has resulted in a house price which is higher than it should be and part of the net foreign liabilities that are higher than they should be.
I believe that will be worked through by a stabilisation of house prices and steady increase in incomes and hopefully that’s the outcome but based on a price to income test, house prices in Australia are higher than they should be.
The regulations in the banking sector significantly promoted that outcome because the risk weight on housing is very low, so the gearing for housing is high. Historically the write-off rate’s been low. People believe that will last forever, which is always a worry. And this is purely with the benefit of hindsight, particularly on my part.
At least he admits it’s with the benefit of hindsight. Trouble now is what can be done? If APRA re weight housing now in will exacerbate the problem
Go to Money Matters they have been predicting housing drop for years -with general Aussies belief that housing cant go wrong, with neagtive gearing and first home buyers – this market has been artificially pushed for ages. WHat goes up fast in markets can go down even faster. What was a commodity market is now an investment market and all investment markets generally have downturns. What really makes us any different to the US or the UK when it comes to housing?
Can I also point out to all these people who point to increasing demand from population growth a thing I call the “go home to mum factor”. Let me explain. Aussie houses are among some of the largest in the world yet our occupancy rate has fallen steadily to now only 2.1 people per house. If people lose jobs or have mortgage stress etc they leave their rental or mortgage house and move in with mum or some friends. Did you hear about the recent tradgedy here in Brisbane where 12 people in one small house were burnt-a simple case of more people moving into the one small house.
Lets say alot of economic things happen to cause people to double up a bit by moving in with friends or going home to mum and dad. If there are now 4.2 people per house in Australia then half of all the houses in Australia are now vancant. Wheres your demand for housing gone now? And theres only an average of four people per house! This CAN and is happening in the poorer parts of Brisbane. Think about it. I hope Im wrong -but then for my kids sake I hope Im right. There could be a 30-40 percent drop in housing and those who will lose the most are the people who bought at the top and even those who think they are getting a bargain right now! Let the buyer beware. The Australian mentality is that this cant happen -most of those who saw it last time have passed on. (1930s). Be ready for tough times ahead.