Australia’s last property bubble

Housing analysts believe Australia is unlikely to experience more housing bubbles, due to interest rates bottoming, working from home spurring decentralisation, and lower levels of immigration:

Chief economist at AMP Capital, Shane Oliver, said the inner city was out of fashion and the new appetite for living further from work would revolutionise the market and stamp out price bubbles…

“That could be something that breaks down the bubble mentality,” Mr Oliver said.

“If you can live in the Blue Mountains and only have to come into the city one or two days a week or not at all, then that’s going to revolutionise the Australian property market and make it harder for bubbles that have been concentrated on city-centric areas because people have more choice about where they live”…

Brendan Coates from the Grattan Institute said it was unlikely Sydney or Melbourne would experience property price bubbles in the near future as “people have been voting with their feet” and moving out of inner-city areas to the suburbs or regional centres.

“I don’t think we will see bubbles,” Mr Coates said. “A lot of the price rises recently can be explained by record low interest rates, and with rates and migration set to remain low for the foreseeable future it is unlikely we will see prices rising quickly in Sydney or Melbourne,” he said.

Here is the research:

Recognising the rapid increase in housing prices and the presence of socio-economic and demographic disparities that often characterise a metropolitan city, we adopted a sub-city approach and deployed an array of methods to detect bubbles in the different regions of Greater Sydney – western, inner-west, southern, eastern and northern – over 1991 to 2016, using Westerlund error correction-based panel cointegration, backward supremum augmented Dickey–Fuller (BSADF) procedure, and dynamic ordinary least square (DOLS) tests. Our cointegration results show no evidence of cointegration between real house price and rent in the western region. However, there is strong evidence of cointegration in the eastern and northern regions. This confirms the existence of housing submarkets in Greater Sydney, and an indication of housing price bubbles in Western Sydney. Further, the formal BSADF bubble tests reveal strong evidence of explosive price bubbles in Western Sydney, while there is no comparable evidence for the other regions of Sydney, which further highlights the importance of submarket analysis. Importantly, the DOLS results suggest that housing investment plays a major role in the build-up of housing bubbles in Western Sydney, supporting Shiller’s Psychological Theory of bubbles which posits that bubbles occur via the speculative behaviour of investors. The implications of the findings are also discussed.

The only thing I can see working against these arguments is the Morrison Government’s plan to scrap responsible lending laws.

The Australian property market faces stiff near-term headwinds from:

  • Collapsing immigration and rising supply;
  • High unemployment; and
  • Falling incomes as emergency policy support is unwound.

The market also faces longer-term structural headwinds from mortgage rates bottoming and decentralisation brought about by COVID-19 and the shift to working from home.

Other things equal, these factors would prevent the build-up of further property bubbles.

However, if responsible lending laws are axed and banks are permitted to lend to anybody with a pulse, then this could result in thousands of sub-prime borrowers being sucked into the market and/or qualifying buyers taking out bigger mortgages than they otherwise would under current rules.

In both cases, property prices could be bid-up without the need for further interest rate cuts or strong immigration, potentially leading to one more price bubble before it all comes crashing down.

Unconventional Economist
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  1. Shane Oliver no longer sleeps. Talk about grasping to stay relevant! Desperately looking for his next job beyond AMP i guess.

    • Negative rates where you get paid by savers and taxpayers to get a mortgage.
      The RBA and banks have been updating their IT systems calculation fields to test this since June.

    • truthisfashionable

      Yeah, I’d be in on that. A house and a new car, just like the ‘Jonses’.

      Especially now that my ~$450 in rent is equal to carrying a P&I mortgage of $500k at 2.4% interest

  2. Hanno Son of Bomilcar

    cities will never go out of fashion as long as young sexy women generally see them as exciting places to live. men therefore have no choice but to live in them too. there will be no appreciable urban exodus bc cities are where the babes are.

    • Sydney and Melbourne urban centres have not been exciting places to live for a while. Poor and broke ain’t cool in this day and age. The neo-hippie and bohemian look are back in vogue.

        • All income must go to the banks and housing, it must never go to anywhere else in the economy. Only by doing that is how we will reach the Australian property utopia in our life times.

        • He was eating Wagyu beef, washed down by the finest Shiraz, every night before setting his sights on home ownership!

        • Looks like quiet a catch. I love the sterile, woke, pasty white and smug “communications specialist” look he’s got going.

        • Jumping jack flash

          ” …tuna, rice and salad for five years to gather enough money to put a deposit… ”

          Five years!
          For a deposit!
          Just a deposit. And I’m guessing it was 5%.

          And this feat is heralded by the news as being extraordinary?
          Mate, come and see me when you’ve saved up the total amount, not just the lousy minimum deposit.

          But more to the point, who says gargantuan quantities of debt aren’t absolutely necessary?
          This is a fantastic example of the “quest for debt” that is responsible for keeping wages low, and hobbles the economy.

          High immigration is a symptom of the debt economy. Stagnant wages are not only caused by immigration, but would happen anyway due to the relentless “quest for debt”.

          While old mate was busy saving his deposit for the correctly sized load of debt he needed, he was barely participating in the economy. Apart from the essentials for living, his money wasn’t being used to buy goods and services which could then be paid to people as wages, create new positions and/or increase wages.

          While he was squirreling away his money, businesses all around him were crying out for him to spend his money.
          What about the business owners? They need debt too. How can they save their deposits? How do they service their debt and buy a 2nd IP?

          They can’t raise their prices because old tuna boy here would simply buy his fish, rice and iceberg lettuce from the place next door or from Aldi or wherever.

          Well, the solution to this quandary is importing 3rd world slaves, and then wage theft.

        • Darlinghurst. I wonder who his “partner” is?
          Also – why is he able to save money on transport from WFH? He lives in Darlo – doesn’t he walk to work? Fkn millenials are soft. I live in Paddo and use shanks pony!

        • The quality of life for the average Australian has deteriorated substantially from when I was a 30 year old. But it’s easy to keep it under wraps when the average 30 year old doesn’t have a clue what quality of life for average 30 year old’s was like 40 years ago. With the aid of modern technology and governments learning from the mistakes of past governments, there is zero excuse – life for everyone in Australia, 2 decades into the 21st century should be heading north. But I’m here to tell you, it isn’t.

      • Yes this is the truth, who is that economist who publicises it, the fun economist or something. And overall, I agree cities will not lose their appeal. In Australia, covid might have made us forget, during the winter, but in the summer you’ve got bushfires.

  3. You gotta hand it to COVID-19…for ending our treasonous federal government’s shrewd 20-year mass-immigration ponzi scheme! hurrah!

    • happy valleyMEMBER

      But they won’t give up – their treasonous irresponsible lending change is just a filler until ScoMo reopens the vibrancy floodgates, on steroids. With these two factors in play, we’re going to see a housing price boom to rock your socks off and as a side benefit Straya will claim gold, gold, gold for the world’s highest household debt.

    • This is a blip on the radar. As soon as humanly possible they will double down with a mass anti racism campaign followed by mass visas for fruit pickers, education, 457 type visas, refugees, immigration.
      We will get 1 million Indians here to pick fruit. Most will end up with a less qualified job though. 🙂

  4. Sounds like the bubble won’t increase much further in Sydney and Melbourne, it’ll just start inflating everywhere else. 🙁

    Five years ago I thought it would pop within five years. I’m convinced it will pop eventually, but with all the forces of a corrupt state, corrupt media and corrupt business pushing it, it may not happen in my lifetime.

    Of course, I’m planning on buying a house next year with my partner, so there’s every chance it will pop the day after I settle.

    • That’s how the property cycle usually works. Goes up first in the major cities, then mid-cycle downturn (usually mild) then in second half of the cycle the places that have already had outsize gains have milder gains going forward, while the regions which usually don’t go up (or only a smidge) in the first half of the cycle, tend to do some catching up in the second half as money from the cities moves out into the regions either from some profit taking or people who are shut out of the cities due to it being too expensive.

  5. Hang on …. so ” unlikely to experience more housing bubbles”……………. does that mean we are to remain in one endless bubble … ie we can’t get “more” as we are permanently in one?

    • Tiliqua scincoidesMEMBER

      There is a good argument that current prices are justified by low rates and high MS. Even if it seems like a bubble relative to pre 2013 prices it might not be (technically speaking). The endless bubble is likely to remain intact unless rates rise (which is highly unlikely).

      We know that looser lending standards lead to higher prices so the most likely outcome is that prices remain elevated and/or increase from here (depending on location).

      • Jumping jack flash

        The endless bubble is the holy grail of the bankers.

        However, the bubble can only be endless if it inflates at the correct rate to become self-sustaining.
        The only time that happened was around 2006. Then in 2008 everyone panicked. It was kind of like when you’re riding a unicycle and you kind of go in the direction you want to go in, and you think to yourself, “hey I’ve got this”, and then you panic and fall over.

        Ever since then they’ve tried to get it going but for the 10 years afterwards they needed to cut interest rates periodically to maintain debt bubble growth. In short, their endless bubble experiment was a total failure, but they’re still whipping that dead horse.

  6. when someone pulls out dickie fuller you know sh!t just got real… not to mention the augmented super Mum.

    “using Westerlund error correction-based panel cointegration, backward supremum augmented Dickey–Fuller (BSADF) procedure, and dynamic ordinary least square (DOLS) tests.

  7. Three words/letters




    How can it have ever been a bubble when prices were fully justified by supply and demand, rents and interest rates/yields ?

    A bubble is irrational

  8. To me Oliver’s piece just screams “vested interests” you don’t need to do anything about affordable housing or housing bubbles as it will look after itself.

    This is crap, nothing will change!

  9. Negative Gearing might be a good thing after all, as with with so low interest or no interest rates to offset against their income, these negative gearers might start to have to pay tax on the properties…Tax office i think would be happy about this. All these NG investors and there’s loads of them could see less income now the main instrument for write down has dwindled.


    Housing bubble days over in New Zealand too ( note recently updated ) …

    NZ can build enough affordable homes – Christchurch proves it … OPINION Bernard Hickey … Stuff New Zealand–christchurch-proves-it

    Christchurch prices and rents flattened in the last five years as everywhere else was rising. Bernard Hickey looks at how our second largest city became the exception to the rule that never enough affordable homes can be built, and whether it could be repeated elsewhere. … read more via hyperlink above …
    Property prices going from boom to ‘Zoom’ – Quotable Value … Voxy NZ

    • … and the United States …

      The Shift from City Centers to Suburbs: New House Sales Soar for 3rd Month, 46% YoY, to Highest Since 2007 … Wolf Street

      But the median price declined. Households paying for office space to work from home? …

      … Median price declines, remains in same range since 2016.

      The median price of new houses sold in August fell 4.3% year-over-year to $312,000, and has been in the same range roughly for the past four years. The twelve-month moving average (red line), which irons out the month-to-month fluctuations, at $324,000, also shows that the median price has gone nowhere over the past few years:


      The median price is influenced by the mix of houses sold. A declining median price doesn’t necessarily mean that homebuilders are cutting prices – though it could mean that too. Builders could just be targeting lower price points to meet consumer demand, or sales could have shifted to cheaper locations (more distant suburbs or lower-cost states).

      The big shift. … read more via hyperlink above …

  11. Mining BoganMEMBER

    Didn’t they all used to deny bubbles?

    Meh, doesn’t matter. That sounded like a permanently high plateau call. That always ends well.