Pickering: Property boom on borrowed time

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By Leith van Onselen

Business Spectator’s Callam Pickering has penned a good piece today, warning that Australia’s property boom is on borrowed time:

The stage is set for Australian property to finally feel the pain so evident across other sectors of the economy…

We are currently stuck in the middle of an ‘income recession’ due to the sharp fall in commodity prices…

Meanwhile, the Federal Government has taken clear and decisive steps to reign in foreign investment in established property…

We also cannot ignore the possibility that the Western Australia economic bust has significant spill over effects for the broader economy and financial system…

Stronger housing supply is set to run into inadequate economic demand and that rarely ends well for investors…

Low interest rates remain the main reason to be bullish about the housing market… but their impact will be squashed to some extent by APRA’s determination to bring investor activity back to more reasonable levels…

There is good reason to believe that the next downturn — whenever that is — will exceed the past three due to the sharp rise in investor activity and record household indebtedness…

Very much the MB line there, and I agree entirely. For mine, the correction will manifest on the back of rising unemployment caused by:

  • Falling mining investment between now and 2017;
  • Closure of the car industry in 2016 (Ford) and 2017 (Holden and Toyota); and
  • Falling housing-related employment as the market turns south in 2016.
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There is also the possibility of an external shock adding to the decline.

This makes 2017 D-Day for the Australian housing market: the year when Australia’s luck finally runs out.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.