First home buyers locked-out again as bubble returns

With Australian dwelling values rising at the fastest quarterly rate in a decade, according to CoreLogic, driven by Sydney and Melbourne:

The ABC’s Michael Janda has penned an article lamenting that first home buyers (FHBs) are again being shut-out of Australian housing:

While Sydney and Melbourne, as well as the national average, are still below their 2017 peaks, at the current pace of growth those record price levels are set to be broken by March this year.

Data on vendor asking prices for houses from SQM Research also has them back around record levels, with Sydney again above $1.3 million and Melbourne above $1 million…

These prospective buyers have been hit with a triple whammy of factors good for those who already own property, but bad for those wanting to buy — lower interest rates, looser mortgage lending restrictions and the retention of negative gearing and the 50 per cent capital gains tax discount…

In the end, it is only a fall in property prices relative to incomes that will genuinely improve long-term housing affordability for first home buyers.

That is only likely to happen through an increase in the number of properties for sale and/or a reduction in the number of existing property owners buying more real estate.

Basically, until you make it less attractive for existing owners to buy more property, or even give them a reason to dump some of their current holdings, first home buyers are not going to see a genuine improvement in affordability.

One of the most logical ways to achieve this is to remove the tax breaks that currently make it feasible and attractive for investors to buy and hold loss-making properties in the hope of future capital gains.

But such changes to negative gearing or capital gains tax look further off than ever after May’s election result.

Michael Janda’s sentiments are justified. But like most of his ilk, he has failed to mention that Sydney’s and Melbourne’s explosive population growth, driven by mass immigration, is making the affordability situation much worse:

Sydney’s and Melbourne’s populations are growing by between 1,700 (Sydney) and 2,300 (Melbourne) people each week. And this manic growth is projected to continue indefinitely, with both cities’ populations to double to around 10 million people each by 2066.

This permanent demand shock created by the mass immigration means that continuous upward pressure will remain on dwelling values, crushing affordability and forcing future generations to live in shoebox apartments.

If you don’t like this situation, Michael Janda, perhaps you should start lobbying against a ‘Big Australia’, rather than focussing purely on tax distortions.

Leith van Onselen


        • I know what he means. But how long does the bull trap last and will FHBs really need able to buy when the dust settles? Or will they have gone further backwards? That’s the real question.

          • Oh sorry. I took that a bit literally. I’ve had my coffee now 🙂
            Yeah, by other comments, I think bcnich is in the mindset of the crash coming very shortly. I have to say, I am thinking it’s not that far away either.
            In-laws are builders out in country. Heard from them over Christmas that their other builder mates are having to reduce their prices to get jobs. Pop was talking he’d rather just retire than do that, I suppose if you are in the position to do so..
            Mum & dad in Sydney want to build extensions to houses. Mum came around over the weekend and was talking about how she couldnt get quotes for the last 2 years on what they wanted to do for less than $180k. Had also told them to forget about tiled roof for that price.. recently (since Christmas), two builders came interested again and both with quotes of $100k WITH tiled roof.
            Told her to watch out for mobs that will go bankcrupt in the next downturn and pay in installments, not all up front. This next one is going to be a game of debt and unemployment.
            Those are big pins to a bubble and I dont think the RBA cut is doing much under the hood… These headline mortgage and corelogic numbers.. are feeling about as useful as GDP and inflation numbers I think. They’re not really telling the story unfolding on the ground. How are you going to get pay rises when the building quotes are going from 180k to 100k… and how are the mortgages going to get paid off? The increase in mortgage applications, probably people taking on second mortgages to keep afloat. It just doesn’t add up to a cohesive story, but then again, Australian property never has.
            And if Scomo gets the boot, that’s a blow for propery lobby; their poster boy is being dragged through the mud (or ash if you will) right now.

          • Agree on all that, personally that’s why I minimised my exposure to debt. It should crash, it must crash, but it might take 2-3 more years to play out and in that time I’d almost be finished paying off the debt. So will ride it out, I was more concerned about other monetary madness distorting things further and punishing the prudent. We all know they will do it, despite saying that it won’t happen. Remember they also said the next move in rates was UP! lol..

  1. We had a young couple over for lunch over the weekend.
    Two kids, currently renting. He works as truck driver, her in clothing retail.
    FHBs looking to purchase in Southern Sydney with a budget of ~$1m
    A decision they will regret for the rest of their lives.
    I’m ashamed of our country and what it is doing to our youth.

  2. population growth has nothing to do with our crazy house prices
    for years or decades we are building more than we need leaver even increasing number of homes empty
    our house prices are driven by speculative demand and that can happen even if population is falling

    • That speculative demand, where does it come from?

      Could it be helped by the hundreds of thousands of new arrivals every year (i.e. new household formulation)? Don’t those new arrivals result in a (much) higher level of credit growth than would otherwise be there? Doesn’t it also help fuel the narrative on the one-way bet for housing investment?

    • Yeah right mate. Then why have Sydney’s and Melbourne’s prices decoupled so strongly from the rest of Australia’s over the past decade? It couldn’t be because they are adding so many more migrants, could it? After all, interest rates and tax rules are universal across Australia.

      You seriously need to change your blinkered view. More people means more demand for housing and credit. It’s basic stuff. High population growth magnifies all of the other structural distortions (e.g. tax rules, easy credit availability, etc).

    • ” that can happen even if population is falling”

      Are you suggesting that if the population shrunk it would be possible for vacancy rates to rise without impacting rental prices and hence property prices? or are you suggesting it is foreign money being parked and leaving homes empty which is eliminating rental supply?

    • Housing fell when credit was tightened. Population growth never slowed.

      I’m sure the prospects of population growth are a reason people are so willing to speculate in Sydney and Melbourne, though.

      • Credit availability the determining factor only if demand is sufficient to push prices towards a credit ceiling.

        If rental vacancy rates were to rise substantially, rental prices would collapse, and property prices would follow. It would not matter how much money the bank was willing to lend you.

        • Jumping jack flash

          There is no “credit ceiling”.
          Well, there is currently an unnecessary self-imposed credit ceiling due to a couple of ancient concepts that are surely just a hangover from the old economic paradigm.

          The first one, and probably the most damaging to the economy is the tradition of a “deposit”.
          The second, but easily worked around, is the dependence of debt availability on income.

          The second restriction is almost annulled by interest rate manipulation, and very soon QE and other MMP (Magical Monetary Policies).

          Look no further to the incredible amount of debt someone is able to obtain on a mediocre income of 78K as proof. Probably close to half a million these days, no worries. 30 years ago there’s no way you’d get anywhere near that.

        • I’m not interested in scenarios that have little chance of happening. Even if MBs population wishes came true, Sydney and Melbourne would still be growing. Credit availability will remain king under all likely scenarios.

          • Are you old enough to remember the last recession?

            Wallets close to discretionary spending. Cafes, restaurants, gyms, etc, close their doors. Unemployed people move back in with their friends of families. Rental vacancies rise.

            A much higher percentage of workers in that space today. Predominantly migrants as well. Those on temp visa won’t be eligible for welfare. Many will have no option but to go back home.

            They can try to bring in more migrants against that backdrop.

        • Credit availability the determining factor only if demand is sufficient to push prices towards a credit ceiling.

          If rental vacancy rates were to rise substantially, rental prices would collapse, and property prices would follow. It would not matter how much money the bank was willing to lend you.

          What if the properties being bought aren’t appearing on the rental market ?

    • doc… your intelligence goes out the door whenever there’s criticism of the mass Third World immigration program.
      The Third World immigration of the past 20 years is the root cause of all that’s gone wrong in Australia.

  3. Jumping jack flash

    “In the end, it is only a fall in property prices relative to incomes that will genuinely improve long-term housing affordability for first home buyers.”


    The price of the property is immaterial. It is irrelevant to anyone except the bank who’s debt is attached to it. The thing is though that as debt is added, prices rise. And as long as the price rises forever, the bank is happy.

    “Affordability” shouldn’t even be a thing in this market. The only limiting factor to “affordability” of houses is the availability of the enormous amount of debt that is required to be able to be obtained to purchase one.

    With the lowest interest rates ever, and probably very soon the redefining or replacement of HEM to something even lower than it is currently, it is clear that the only hurdle for first home buyers is that ridiculous requirement for 5% of the purchase price to be used as a “deposit”.

    Incomes are going nowhere and will never go anywhere again due to the insatiable and irresistible need and requirement to obtain as much debt as humanly possible. The prices of houses are rocketing because of the debt, which is surely a fantastic thing. The problem then becomes the amount of time required to save the 500K on an average 78K income to purchase an average 10million dollar house [sometime around 2050].
    Limiting access to debt based on that archaic 5% “deposit requirement” is just hurting everyone, including the banks.

    Like an economy that doesn’t manipulate interest rates, a deposit is a thing of the past and it is totally unnecessary because house prices only ever go up as debt is added so there is no risk whatsoever. The question must be asked: “why the need for any deposit requirements at all”? Just give me my insanely huge debt pile and everything will take care of itself.

  4. The90kwbeastMEMBER

    Not a bad article Michael Hands, but to be fair FHBs have been priced out since 2010 really

  5. James DaveyMEMBER

    There is absolutely no incentive for Local, State and Federal Govt’s to reduce property prices, why would they?
    Higher property prices means more CGT tax, more GST, higher Council rates notices, more stamp duty etc.
    The Govt actually likes higher property prices hence first home buyer schemes etc which increase prices.