LF Economics’ co-founder, Lindsay David, appeared on Switzer today to discuss Australia’s housing bubble (watch video here).
On the segment, Lindsay David notes multiple evidence of a housing bubble, most notably “Australian house prices have risen in real terms by 131%, whereas real wages have risen by 38%… and real rents have only increased by about 20%”.
David is most concerned about Melbourne, where house prices have risen by 214% over the past 20 years, whereas real rents have only risen by 12%. “That is probably the biggest mis-match that you will ever see in probably any city in the world”.
In terms of what could cause the bubble to pop, David notes a variety of potential factors, including:
- Rising unemployment in industries attached to the bubble (e.g. construction workers); and
- Rising cost of money globally.
David also calls on APRA/RBA to implement stronger macro-prudential controls to stem the growth in credit, particularly banning interest-only loans, as well as policy distortions that pump artificial demand.
