Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 178

Is the housing market in bubble territory?

Housing is expensive in Australia. Measured as a multiple of average wages, Sydney residential property costs nearly 1½ times that of London and over twice that of New York. All eight of Australia’s capital cities are dearer than Boston, Washington, Chicago, and Tokyo.

But let’s put housing in a wealth perspective. The diagram below shows the assets and liabilities of Australia’s households using the latest official ABS data (2015). Housing represented 53% of all assets, but a lower 45% if net of mortgage debt. Even adding in household durables (furniture, appliances, cars etcetera) doesn’t bring the total to half of net assets, so the majority of our net assets now resides in financial and commercial products.

We have over 10 million dwellings which had a total value of $5.9 trillion in 2016, or 3½ times Australia’s annual GDP. There were almost three times as many houses as flats and apartments, the average dwelling costs just over four times average household income, and was valued at $584,000 in June this year.

Our density is just over 2.5 persons per dwelling, half that in 1901. Our dwellings are now much bigger, nearly three times, with three or more bedroom dwellings accounting for almost three-quarters of all residential properties. The table below adds some more perspective.

Australians borrowed $400 billion last fiscal year for new housing plus alterations and additions to existing dwellings. We can afford all this on top of existing debt, as the two following charts suggest. Debt servicing is as low as it’s been in five decades, due to record low interest rates.

Our capital cities

Australia’s population is one of the most urbanised on the planet, leaving aside city-states such as Singapore and Hong Kong, but prices across our capital cities vary enormously.

Sydney is the odd-one-out given its prices are so far ahead of the second priciest market Melbourne. The two charts below suggest the degree to which Sydney prices seem to be well over trend compared with Melbourne.

The difference is even more marked when we compare just apartments. Sydney had been under-supplied for nearly a decade, whereas Melbourne had gone into overdrive, leaving Sydney over the past year a sellers-market (prices over-trend by 12-13%) and Melbourne the opposite: a buyers-market, with prices 7-8% under-trend.

The indications are that price growth is abating as we head into 2017. In FY16 prices have fallen a little in Canberra and more in the mining states with their capitals - Darwin and Perth. – falling by 5% or more over the 12-month period.

So what?

Firstly, Australia’s economy is not threatened by its world-leading dwelling prices: they are affordable as seen by the earlier debt servicing graph where the ratio is the lowest in some five decades. The chart below reinforces the fact that we have lived with an affordability ratio in the high range (3½-4 times household incomes) for a decade and a half, without dire things happening.

Yes, Australia’s household debt (mainly mortgage debt) as a share of GDP is one of the highest in the world, but manageable. And our corporate and government debt as a share of GDP are among the lowest, if not actually the lowest. Overall, we are not living too far above our means compared with most other developed nations.

Sydney is the stand-out loner among our capital cities. Its economy and that of NSW are doing well, indeed the best in the nation, but that may not protect it from a dwelling price correction in the year or so ahead, or a longish period of prices flat-lining until incomes catch up to restore equanimity.


Phil Ruthven is Founder of IBISWorld and is recognised as one of Australia’s foremost business strategists and futurists. This article is general information and does not consider the needs of any individual.


November 29, 2016

It's a bit concerning that a movement of 2% in interest (2006-2008) lead to an increase of 5% in % of household income, and that current serviceability is almost the same as when interest rates were 16%. Won't it be exciting if interest rates are forced up a bit.

October 31, 2016

Despite the hype and optimism of property spruikers hoping for more interest rate cuts to maintain the upward trend, one factor against replicating the same type of housing price growth is the possibility of changes to negative gearing or capital gains tax concessions. Superannuation has already had a haircut and governments looking to raise revenue are likely to change the current policy settings for investment property.

Murray Rothbard
October 26, 2016

The residential price charts start around 1986-1987, when interest rates were still on the way up but approaching their peak. A key factor in the performance of residential land over this period has been the fact that interest rates (and mortgage rates as a result) have been in a sustained downward trend.

All long duration assets have benefited greatly from this trend, especially residential land in capital cities such as Sydney and Melbourne.

I find it almost impossible that the same type of performance can be replicated over the next 30 years with interest rates at their current level.

October 22, 2016

I think manageable is the key word.I bought an investment property in 1990 for around 100K.annual income of around 30K,interest rates @ around 19%.

Close to 66% of gross income just to pay the interest on the loan.Thankfully the rent and tax rebates saved me from bankruptcy,but it was very difficult.The bank should not have lent me the money,however that was still my fault,not theirs.

Today I still own that property and it can be bought for around 500K,average income in WA around 80K,interest rates @ 4%.To pay the interest on the loan is 25% of income.We are constantly told that houses are overpriced and nobody can afford to buy, and houses were so cheap years ago.The mind boggles.

Say in 30 yrs time will history repeat and everybody will be saying exactly the same things as today .Nobody can afford to buy a house,houses were so cheap in 2016.

Is it a case of the only lesson that history teaches us is that people refuse to learn the lessons that history teaches us.

Should rent not be looked at as an incalculable amount of debt over the coming 30 yrs.i am old now,all of my life people have kept repeating that nobody can affoed to buy a house,from the 1950,s on time has proved it to be nonsense.

October 20, 2016

I'm a bit confused about the debt servicing graph. 5% of household disposable income??

I'm assuming this must be an average figure which has been dragged down by people who purchased property some time ago and have been paying off their loans for a long while. At the other end of the scale there are lots of people with significantly higher debt servicing ratios than that. Banks don't foreclose loans based on average serviceability across their lending portfolio. They monitor each loan individually. A more meaningful statistic might be what percentage of total loans are held by people with very high servicing ratios.

I'm also a bit surprised at the "trend" line. It appears to be based on only 30 years worth of data. Longer data series indicate a much lower trend, and suggest that the last 20 years of property prices are way above trend and overdue for a correction. Either that, or long term trends are no longer relevant because "this time is different", "this market is different", "we are undergoing a paradigm shift" or "this is the new normal".


Leave a Comment:



RBA signals the end of ultra-cheap money. Here’s what it will mean

Will the house price boom be a boon for Australian banks?

Australian house prices: Part 1, how worried should we be?


Most viewed in recent weeks

10 little-known pension traps prove the value of advice

Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Hamish Douglass on why the movie hasn’t ended yet

The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Latest Updates

Investment strategies

Three ways index investing masks extra risk

There are thousands of different indexes, and they are not all diversified and broadly-based. Watch for concentration risk in sectors and companies, and know the underlying assets in case liquidity is needed.

Investment strategies

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.


2022 outlook: buy a raincoat but don't put it on yet

In the 11th year of a bull market, near the end of the cycle, some type of correction is likely. Underneath is solid, healthy and underpinned by strong earnings growth, but there's less room for mistakes.


Time to give up on gold?

In 2021, the gold price failed to sustain its strong rise since 2018, although it recovered after early losses. But where does gold sit in a world of inflation, rising rates and a competitor like Bitcoin?

Investment strategies

Global leaders reveal surprises of 2021, challenges for 2022

In a sentence or two, global experts across many fields are asked to summarise the biggest surprise of 2021, and enduring challenges into 2022. It's a short and sweet view of the changes we are all facing.


What were the big stockmarket listings in record 2021?

In 2021, sharemarket gains supported record levels of capital raisings and IPOs in Australia. The range of deals listed here shows the maturity of the local market in providing equity capital.


Let 'er rip: how high can debt-to-GDP ratios soar?

Governments and investors have been complacent about the build up of debt, but at some level, a ceiling exists. Are we near yet? Trouble is brewing, especially in the eurozone and emerging countries.



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.