Australia's housing market: Is the Turnbull Government in denial?

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Treasurer Scott Morrison says Australian housing values are "safe as houses" (screen shot via YouTube).

GDP, productivity, liquidity and loan criteria statistics don't seem to support Scott Morrison's confidence in Australia's housing market. Arthur Marusevich reports.

AT THE END OF 2017, whilst reassuring U.S. investors – and Australian mums and dads – that Australia is not headed towards a housing market crash, the Treasurer Scott Morrison said:

While Australia's housing markets, especially in our largest cities, have experienced strong growth over the past decade this, of itself, is not evidence of an underlying weakness in housing asset values, nor that a hard landing for our housing markets is ahead … Australian housing values, while high, are still real. "Safe as houses" still broadly means something in Australia.

No doubt, robust economic growth in the housing market – or any other sector – is crucial for the economy. However, equally, we must be able to recognise and proactively moderate risks, as and when they present themselves. Because if we don’t, it’s just a matter of time until the global financial crisis of 2008 repeats itself — and that we all know we cannot afford.

So the question is, apart from the fact that those who negligently make detrimental financial and economic decisions for and on behalf of a nation with minimal accountability, where does the Treasurer’s confidence in the housing market come from?   


After the gold rush of the 1800s, Australia’s abundant resources are the main reason why this country experienced a miraculous average GDP growth of 3.3% between 1992 and 2016. Unfortunately, since the start of 2017, Australia’s luck has been fast running out. GDP growth is slowing down and there is a reason for it.

Without a shred of a doubt, Australia’s huge dependency on China for exporting one-third of anything that is dug from the ground has been the main driver of the country’s economy for a long time. Take iron for example — it is Australia’s biggest export, making it the largest exporter in the world with 29% of global share in 2015-16. Amazingly, around 81% of Australia’s iron ore export went to China and of that, about 50% was used in property development.

With tighter credit and a temperamental housing market, China’s demand for iron ore has fallen. In 2016, China’s steel capacity was cut by 6% and in May 2017, China’s steel stockpiles were still enough to build 13,000 Eiffel Towers. Overall, in the last six years, China’s demand for iron ore has fallen by 60%.

Australia is the world’s largest exporter of coal, constituting around 38% of the world’s demand. 2016 saw a steep rise in global demand from 261Mt in 2008, to 388Mt. However, in 2017, the value of coal collapsed by almost 38%, from $54.7 billion to $34 billion. Overall, the projected demand for coal globally is in decline, as renewables are poised to overtake.

Recent figures from the Australian Bureau of Statistics (ABS) show that although certain industries recorded some form of growth – agriculture, forestry and fishing being the highest at 18.3% – construction, manufacturing and other services have dropped. In fact, between 2005 and 2016, Australia’s manufacturing sector added about a negative 275,000 jobs since the 1990s – noting that this collapse of about 4.2% in gross value added (GVA) to Australia’s GDP took place even before the shutting down of Toyota, Holden and Ford’s manufacturing. In 2016-17, manufacturing has exhibited a weaker growth than in 2015-2016, at 4.7%. No wonder there are predictions that wage growth may never recover.

With consumer spending downbeat as the cost of living increases and wage growth remains stagnant, it is clear that the Treasurer’s confidence in the housing market cannot come from Australia’s slowing economic growth.

Housing market in WA

Western Australia’s mining boom was at its peak in 2012 and was responsible for the State’s unprecedented economic boom, with median house prices in metropolitan Perth topping almost $600,000, while country areas reached a peak of almost $450,000. Today, it’s a whole lot different in WA. The latest Government figures show that median house prices in metropolitan Perth have dropped to almost $500,000 while country areas are as low as $369,000.

People are already struggling to make mortgage repayments and the decreasing value of properties means many can’t even afford to sell. No wonder billionaire Kerry Stokes stakes his reputation that the WA property market is “perfect” for making money. Perfect for whom?

Dodgy loans

Last year, UBS warned that around $500 billion of Australian mortgages could be “liar loans”. This means that up to a third of Australian mortgagees have, in some form, completed factually inaccurate application forms in relation to income, assets, existing debts, and/or expenses. The highest number of “liar loans” are with ANZ (about 45%) followed by NAB (38%), CBA (33%) (Westpac 31%). With Chinese investors still pumping billions of dodgy cash into Australian property, UBS is quite right to warn that the Australian banks are even more vulnerable to a housing downturn that most people, including the Treasurer, think.

Interest-only loans

At a Parliamentary hearing in 2017, Westpac’s chief executive Brian Hartzer confessed that more than 50% of the bank’s mortgages were interest-only. This doesn’t come as a surprise especially when at its peak, interest-only loans in Australia constituted 59% at the end of 2015 and 47% at the end of 2016 of all mortgages combined.

Now, although the Australian Prudential Regulation Authority (APRA) may be satisfied that interest-only loans have since started dropping because of its stricter lending practices, this is still not enough for the Treasurer to be so confident in the housing market.

In fact, abrupt tightening interest-only loans may even cause further harm. How are people on interest-only loans going to cope when the banks raise the interest rates? With inflation on the horizon, it’s just a matter of time until there is a hike in interest rates.


In late 2015, the Australian Prudential Regulation Authority (APRA) confirmed Australia has a massive $245 billion emergency liquidity line to banks, although APRA chairman Wayne Byres warned that Australian banks still face long-term liquidity issues.

Recently, commercial banks, such as Macquarie, have started luring the Australian public into opening up savings account on the basis that ‘the Australian Government guarantees aggregated deposits with Australian authorised deposit-taking institutions, including Macquarie Bank, of up to $A250,000.’

Now as a reminder, in 2008, when the then Secretary of the U.S. Treasury, Timothy Geithner, urged American banks to raise capital, he did it because the toxic subprime mortgages had stressed out the entire U.S. financial system. Is this what’s happening – albeit behind closed doors to avoid panic, the number one ingredient for creating fiscal instability – in Australia now? 

So, if it is not GDP, productivity, liquidity or lending practices, where does the Treasurer’s confidence come from?

The answer is the housing market itself — a bubble that has made a cumulative gain of 6556% since 1961. And unfortunately, that bubble is close to popping.

Arthur Marusevich is a Canberra-based lawyer.

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