Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 299

Housing prices from black hole to blue sky

Housing in Australia is the nation’s single most important resource, accounting for 46% of the total $15.8 trillion value of all assets in 2018. So, businesses, governments and householders get nervous when the market becomes discombobulated as it has now been for a year or more, with uncertainty the order-of-the-day.

In June 2018, there were 10.6 million dwellings valued at $7.2 trillion, an average value of $680,400. An estimated 9.6 million were occupied, with the balance of nearly 1 million unoccupied (holiday and otherwise being interim or for sale, temporary or long-term vacancies).

Affordability of housing

The ratio of dwelling prices (the blue bars below) to disposable household income was 3.98 in 2018, a little higher than the previous record of 2007 and 2010, but now easing down due to falling prices.

 

In June 2018, the interest on household debt of mortgages, loans and credit cards as a percentage of total disposable household income was 9.0%, mostly comprising mortgage interest at 7.4%. This was much lower (due to record low interest rates) than the peak of 15.4% some 10 years earlier in 2008 (when mortgage interest was 12.1% of disposable household income).

 

The continuing low mortgage rates is helping new home owners weather a potential affordability impasse if not disaster, although plunging dwelling prices creates the problem of debt exceeding asset value in many cases. Lenders will need to exercise patience in most of these cases, relying on debt servicing ability more than temporary negative net asset value.

Major city house prices

The current dwelling price correction, for the nation’s near-11 million dwellings, is warranted and dramatic, and there is further to go. But only Sydney and Melbourne houses had ‘bubbles’ while other capital cities were over-trend.

 

In 2019 and possibly 2020, we expect further falls of around 7 to 8% on a national average basis.  This converts to a 13% national fall from the peak in December 2017. Sydney houses could fall by up to 22-23% from peak to trough, having been in a bubble. However, continuing low interest rates (eventually rising slowly), rising incomes, government incentives, and lender accommodation could minimise the dangers.

Almost $400 billion was spent on dwelling finance over recent years, of which over a fifth was on new dwellings. This has been crowding out investment in other wealth-producing investments for growth, efficiency and competitiveness.

It is astonishing that the nation increased the output of new dwellings by almost 50% from less than 148,000 of 2013 to almost 220,000 in 2017. In just 4 years! A fall of 30% from this peak by FY2022 is now possible. NSW, having had a more spectacular rise, can be expected to have a more spectacular fall.

 

But by a few years into the 2020s, prices and construction numbers will be on the rise again. We may have a black hole in the interim, but there is always some blue sky above that greets us as we come out of it.

 

Phil Ruthven is Founder of the Ruthven Institute, Founder of IBISWorld and widely-recognised as Australia’s leading futurist.

 

RELATED ARTICLES

7 key charts on the state of the Australian property market

A developer's take on Australia's housing issues

Australian house prices close in on world record

banner

Most viewed in recent weeks

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are franking credits worth pursuing?

Are franking credits factored into share prices? The data suggests they're probably not, and there are certain types of stocks that offer higher franking credits as well as the prospect for higher returns.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Latest Updates

A nation of landlords and fund managers

Super and housing dwarf every other asset class in Australia, and they’ve both become too big to fail. Can they continue to grow at current rates, and if so, what are the implications for the economy, work and markets?

Economy

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Retirement

Retiring debt-free may not be the best strategy

Retiring with debt may have advantages. Maintaining a mortgage on the family home can provide a line of credit in retirement for flexibility, extra income, and a DIY reverse mortgage strategy.

Shares

Why the ASX is losing Its best companies

The ASX is shrinking not by accident, but by design. A governance model that rewards detachment over ownership is driving capital into private hands and weakening public markets.

Investment strategies

3 reasons the party in big tech stocks may be over

The AI boom has sparked investor euphoria, but under the surface, US big tech is showing cracks - slowing growth, surging capex, and fading dominance signal it's time to question conventional tech optimism.

Investment strategies

Resilience is the new alpha

Trade is now a strategic weapon, reshaping the investment landscape. In this environment, resilient companies - those capable of absorbing shocks and defending margins - are best positioned to outperform.

Shares

The DNA of long-term compounding machines

The next generation of wealth creation is likely to emerge from founder influenced firms that combine scalable models with long-term alignment. Four signs can alert investors to these companies before the crowds.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.