Investor mortgage stress to rise as income support unwound

Economic modelling shows that the federal government’s coronavirus support measures have been crucial in averting widespread housing affordability stress (HAS). The modelling, which was undertaken on behalf of the Australian Housing & Urban Research Institute (AHURI), suggests that some 1.336 million households would have experienced housing stress without government initiatives such as JobKeeper, JobSeeker and the coronavirus supplement.

The report also warns that property investors under stress are projected to double:

It is estimated that the number of households living with HAS would have risen to 1,336,000 (from the 758,000 baseline) without the JobKeeper and JobSeeker interventions.

The JobKeeper and JobSeeker interventions reduced the incidence of housing affordability stress by a considerable amount: 861,500 household compared to 1,336,000 without the intervention.

As JobKeeper moves through its later phases, HAS gradually rises by a further 124,000 compared to phase one, and 73 per cent of these households are private renters…

Nearly 50,000 households that face high housing cost burdens themselves also own a private investment property – this is cause for concern given that private renters have been disproportionately affected by the downturn…

Finally, households living with HAS and owning an investment property themselves are predicted to more than double. All interventions modelled have a mild effect on these additional numbers.

Commenting on the report, lead author Chris Leishman warned that the number of people experiencing housing affordability stress is likely to rise sharply if support measures are withdrawn too soon:

“The modelling reveals that some 103,500 households entered situations of housing affordability stress as a result of the pandemic.

“The policy concern is that if these highly successful government interventions are withdrawn prematurely, almost a third of those saved from suffering housing affordability stress will now experience it.

“Without an extension of the JobKeeper income support measures beyond March 2021, the number of households living in HAS is likely to increase significantly, to at least 793,000, and could reach as high as 893,000.”

With JobKeeper and JobSeeker supplement scheduled to expire at the end of March, we should start seeing the impacts in mid-2021.

Unconventional Economist
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  1. “With JobKeeper and JobSeeker supplement scheduled to expire at the end of March, we should start seeing the impacts in mid-2021.”

    To no doubt be extended or replaced with some other form of “temporary” support. Which will subsequently be replaced with more temporary support and on and on, until everyone in the country works in the property industry in some fashion.

    • Jumping jack flash

      “To no doubt be extended or replaced with some other form of “temporary” support.”

      Nah, if the can-kick gets things going again and the debt grows at the right rate, it will be replaced with enormous piles of debt, the way our glorious masters of the economy always intended.

      The debt is forever, until it is completely repaid plus all the interest. Long live the debt!

      The New Economy depends on the debt never being repaid, only being serviced for a relatively short period of time until it is transferred from one person to another, growing by the right amount each time.

  2. Holiday In ScomodiaMEMBER

    Anecdata seeing alot more people previoulsy in decent jobs now running out of super withdrawal money at same time as gov support winding down while job prospects still poor. Triple whammy. Seeing more bankruptcy notices even tho 6 months proetection still in place, starting the ball rolling I guess. Debt collectors now chasing harder than earlier in year, hardship depts at banks not automatically extending deferrment, issuing notice to catch up payments in a few cases. Few renters telling me requests for a reduction met with flat no or ignored. More eviction notices. The rush to remove responsible lending and quickly find new sources of deposits (super?)for savvy bag holders makes more sense now… funnily enough some IP holders just taking the white knuckle option and not even thinking of selling even when it wold put them in the clear. Wont just give it away I suppose… When will this result in more stock/prices I wonder… 18 months time?

    • A bit more anecdata; my moronic ex-business partner teamed up with another moron and leveraged their homes into 17 investment properties. All in low to middle socio-economic areas that would usually sell quite easily. They subdivided a couple of blocks into units. I’m confident that he’s now in negative equity for about 12 of them – I estimate about 20% down on a $6m “portfolio”, and I suspect a lot of the properties have rolled over from their five year interest-only period in the last 12 months.

      A couple of months ago I noticed his home was on the market for the original price he paid in 2017, which I know is not something he’d choose to do. Two weeks ago he dropped the asking price to $80k less than what he paid. This week I’ve noticed that four of the 17 investment properties are for sale. From what I can guess, he’s trying to get out of anything that isn’t in negative equity, and he’s trapped in the rest. This is in WA where supposedly, if you believe the media, the boom is back.

        • I know another person who bought an investment property in Karratha (Nickol) and another in Onslow, for a total of $1.6m, with the deposit mortgaged against equity in their modest suburban home down south. At the peak they were BBQ-boasting that they were getting $1500/week rent but, when it all went wrong in 2016/17, the bank forced them to sell for a loss of $900k. They lost their home, and are now renting.

    • Even more anecdata- patient has mate who works at Porsche Australia. Apparently 2020 was the best year for sales they have ever had.

      • Relax it will all start to trickle down soon.
        Regular Australians will no doubt get the opportunity to wash the new Porsches of the capital rich classes.

        Which is almost exactly the amount of “trickle’ that is required to declare our monetary experiment a success.

  3. All this money going into protecting unproductive, overleveraged assets will accentuate the pain in the long run. But it has been a terrifically good long run for housing in Australia.

  4. Jumping jack flash

    All eyes on the debt growth.
    Will it continue to rocket up, soon inflating prices and then a little later, wages, enabling larger and larger piles of debt to be created which will continue to inflate everything, not just house prices?
    Or will the debt growth fizzle out, continue the downward trajectory and require NIRP/UBI?

    These are the questions that will hopefully be answered around March/April 2021.

    My bet is on the inflation. I predict a great deal of that super that was withdrawn is going to be leveraged into whopping great piles of debt which with a bit of luck will be enough to get it all humming along again like it was in 2006.

      • Jumping jack flash

        Yes indeed.

        If the debt flows as effortlessly as water and flows through the economy like a tidal wave then all those unfortunate people in stress will be able to transfer the remainders of their piles of debt to other people, plus walk away with a bit extra on top.

        Theres no risk if the debt grows fast enough.