I am a Burmese exile taking a near-permanent refuge in New York and Sydney. Here are my essays about Burma and anything else I feel like writing about. And posting the articles I like from selected sites. Bridging Burma to the world this Blog is more of a Politically-Oriented Literary Blog than a Plain News Blog or a Sophisticated Thoughts Blog.
Australia is in one of the worst housing bubbles we have
By all accounts, Australia is experiencing what is one of
the greatest credit-fuelled real estate bubbles in modern times. On the back of
a collapsing mining sector, we can thank the RBA, APRA, ASIC and the political
elite in Canberra for creating a flawed household wealth-creation strategy that
shares all the hallmarks of a predictable economic disaster.
English, since the mid-1990s, Australia's strategy is for home buyers and
investors to borrow heavily from lenders and flip houses to the next buyer who
has taken out even more debt to speculate.
Today, all this
country has to show for it is a $1.9 trillion mountain of household debt that
will make the US credit-fuelled housing bubble of the last decade look like a
walk in the park when our housing bubble bursts.
The unfortunate victims of today's
"wealth-creation" strategy are young home buyers and middle-income
earners who are either completely priced out of the market or leveraged through
While our society lacks a meaningful and open debate on the
toxic and rising levels of household debt, new home buyers in Sydney and
Melbourne are entering the market and taking upon the most illogical sums of
debt, courtesy of our over-leveraged banking system.
Based on median multiples, new home buyers in Sydney will
spend the better part of 6.54 years savings (using 30 per cent of their income)
for a 20 per cent deposit to buy a median-priced home.
When it comes to servicing the first 12 months of a
25-year/80 per cent LVR mortgage, it will cost roughly 65 per cent to 70 per
cent of household income to service that debt at current record-low mortgage
rates. Melbourne is not too far behind.
So what have our leading economists, regulators, public
executives and politicians done to stop this debt-induced folly? Nothing. In
fact, they have bent over backwards to inflate prices via stimulants such as
housing grants and allowing retirees to tap into their life savings.
These powerful stimulants have been implemented, not to
improve home ownership rates, but to boost prices for the benefit of existing
owners, bankers' profits and government balance sheets.
If new home
buyers cannot access (or are not willing to take on) a greater sum of debt
compared to previous buyers, Australia's wealth-creation strategy will collapse
just like it did in Ireland. Rest assured, our society is definitely caught up
in the same irrational exuberance they experienced.
From 1996 to 2014, housing prices and mortgage debt
significantly outpaced economic fundamentals like inflation, rents, incomes and
GDP. Yet, our central bankers are more concerned about whether we will pay less
tomorrow for a can of soda than new home buyers in Sydney borrowing $50,000
more than last year to buy a home. Where is the logic in that?
If the RBA factored in the expansion of debt required for a
new home buyer to enter the market, inflation would officially skyrocket
through the roof. Regardless, our political and economic elites are now
stuck between a rock and a hard place.
Unfortunately, that is the price a country pays when it
builds an unsustainable property bubble while avoiding a debate on the most
important topic when it comes to housing: debt.
With Australia having the world's most indebted household
sector, the seemingly unending price rises in Fool's Paradise will eventually
slam to a halt. As I argue in my new bookPrint: The Central Bankers Bubble,
having the largest housing bubble and mining boom in Australia's economic
history going down simultaneously will cause a severe economic and social