7 Reasons Australian Property Won’t Crash

Is Australia’s property market really a precarious house of cards waiting to topple?

There’s a property debate raging at present – some say the future for property is bright while others suggest our markets are set to crash.

After a number of boom years, especially in the Sydney and Melbourne property markets, we’ve entered a more mature stage of the property cycle, and obviously, it would be good to know who’s right if you are considering investing in property, or about to buy a home.

But remember there is not one property market around Australia

Our markets are fragmented – not only is each state at its own stage of its property cycle, but within each state different segments of the markets are behaving differently.

So it doesn’t really make much sense to say the “Australian property market” will crash.

Interestingly I’ve heard many theories as to why the property bubble will burst.

Some doomsayers are predicting a property crash because house prices have risen too high and are now unaffordable.

Others suggest we have taken on too much debt both personally and as a nation.Australian Dollar Pyramid

However, just because houses prices are high or unaffordable to some, doesn’t mean we have a property bubble.

In fact, I’m going to give you seven good reasons why the property markets won’t crash, but first…

Let’s look at how property markets corrected in the past.

To understand what’s ahead, let’s look at what happens when property markets got ahead of themselves in the past.

Sydney had a terrific boom between 2001 and February 2004.

In fact it was one of the best performing property markets between 1996 and 2004, helped in part by the excitement related to the Olympic Games.

After this boom the Sydney property market corrected.

It didn’t collapse – it just corrected – with values falling from peak to trough by -9.3% and this fall took a total of 23 months to play out.

Of course not all parts of the Sydney market dropped in value equally – some areas held their values well.

And even in the regions where values fell, property prices didn’t plummet – they gently followed a downward path.

The doomsayers were out then also, but just look at where Sydney property prices are today.

A similar pattern occurred in Brisbane and Perth where values peaked in February 2008 after a long boom in both cities pushed their house prices well above the average national price growth.

Again property prices didn’t collapse – they just sauntered along allowing the fundamentals to get back into alignment.

Much the same happened in the early 1990’s when we experienced “the recession we had to have.”

After the remarkable property boom of the late 80’s, interest rates rose to peak at around 17% and the property markets around Australia stalled.

But once again they didn’t collapse.

They just flat lined for a few years as affordability, supply and demand other economic fundamentals caught up.

And when property prices peaked in late 2010, the last time the RBA pushed up interest rates, property prices gently eased in our major capital city markets – they didn’t plummet.

main feat

Source: Corelogic

The only time Australian property values dropped significantly (albeit for a short time) was after the Second World War and during the Great Depression.

In the 1940’s house prices dropped 17% over a two year period but then jumped back and grew strongly for many years after that.

Property values also dropped during the Great Depression when unemployment was high, but times are different today.

No one is suggesting that Australia is heading for a depression. Sure our economy is slowing a little, but it’s still the envy of most developed nations.

That’s why talk of a property market collapse is nonsense.

Why don’t Australian property markets collapse?

Well some do!

Just look at the mining towns where the values of some properties have fallen by over 50%.

Or some holiday destinations like the Gold Coast.

But here’s why…

The mining towns where driven to dizzy heights by speculators and the Gold Coast was also driven more by speculation than by underlying supply and demand fundamentals.

The large fall in prices there was because there was too much developer stock on the market.

But my point is that, in general, our capital city property markets don’t collapse because they are illiquid.

People don’t sell up their homes just because interest rates rise or when times get tough.

So what could cause a property market collapse?

Looking at what has happened in the past, both here and overseas, the factors that could make our markets to collapse (rather than correct) are:

1. A depression or a severe recession– no one is suggesting this is likely in the near future.

2. Unemployment levels so high that a mass of people can’t afford to keep their homes.
Again this is unlikely to occur with unemployment levels being as low as they are.

3. Interest rates rising to levels that cause home owners to default on their mortgages.
Hopefully the RBA won’t allow this to happen.

4. A huge oversupply of properties because developers have built too many.
We’re currently seeing this in the overheated inner city off the plan market segments, especially in Melbourne, Brisbane and Perth.

5. Credit market illiquidity or a credit squeeze. Currently APRA are trying to slow down the growth of our property markets to underpin the banking system, but they’re not looking to choke the markets.
That wouldn’t be good for anyone.

Why property won’t crash

There are a number of reasons why we won’t see major falls in home prices in our capital cities any time soon.

We have:

1. Robust population growth fueled by immigration and to a lesser extent strong natural population growth.

While immigration levels have dropped, we’re still growing at a faster rate than any other country in the developed world.

2. A healthy economy that, while slowing a little, will continue to perform at a level that is the envied by of much of the Western world and will create jobs for anyone who wants one.

3. A sound banking system with reasonable interest rates, tight lending practices and low default rate.

4. Business confidence is rising as we seem to have a stable government at both the Federal and State levels.

5. Consumer confidence has been rising since Malcolm Turnbull was elected Prime Minister.

6. A healthy level of household debt.

Sure we are borrowing more, but the debt tends to be in the hands of those who can afford it.

Many Australians are saving more, taking on less credit card debt and paying off their mortgages faster than they need to which improves the state of their personal finances.

This in turn reduces the risk of house prices collapsing if interest rates rise or the economy hits a speed bump.

7. A culture of home ownership – seventy per cent of us own or are paying off our homes.

In contrast to some overseas markets Australians have high equity in their properties and a conservative debt position.

In fact half of all homes have no debt against them.

There’s no sugar coating it…property price growth will slow in 2016


Decreasing affordability, changing sentiment and oversupply in several sectors such as CBD and off the plan apartments will create a volatile mix that will fragment and slow our property markets – moving some from a seller’s to a buyer’s market.

This is already evident with falling auction clearance rates particularly in the Sydney property market.

Yet there is still a large demand for housing – people are still getting married, having babies, getting divorced and coming from overseas.

And if they can’t afford to buy their homes they are going to rent and this will force rentals up.

So what’s ahead?

As Australia’s economy bumbles along I can see little wages growth over the next year or two, but I do see interest rates rising sometime in 2017 and both these factors will affect some suburbs more than others.

What I mean by this is that rising rates are likely to affect suburbs that are more interest-rate sensitive like blue-collar areas, regional locations and first-time buyer locations.

On the other hand, property values are likely to increase in the more affluent, gentrifying middle ring suburbs of our major capital cities where the locals’ income is less dependent on CPI rises in wages and where rising interest rates are less likely to have an impact on disposable incomes.

So my top picks for suburbs that will outperform would include suburbs where people have higher disposable incomes and are able to, and prepared to, pay a premium to live there the because of the amenities in the area.

Property price growth in Sydney will likely slow to around 5% over the year ahead and Melbourne prices should grow a little more than this (+7%).

Prices will fall a little more in Perth and Darwin as the mining boom continues to unwind, while Hobart is likely to see continued moderate property growth, but the Brisbane property market should start to pick up further as it plays catch up rising around 7% over the year.

And I can’t really see a reason for regional or mining town real estate to have much capital growth.

There is no influx of new people moving to these regions little to strengthen their economies and investors are no longer buying up big in these regions.

But rest easy – there won’t be a property market crash in our capital cities.


If you’re looking for independent property investment advice to help you become financially independent, no one can help you quite like the independent property investment strategists at Metropole.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

'7 Reasons Australian Property Won’t Crash' have 6 comments

  1. November 20, 2015 @ 11:08 am Ben Loveday

    Good article. Generally agree. However you don’t mention Adelaide!!! (despite it being 10 times the size of Darwin), but understandably because of the uncertainty surrounding the defense, manufacturing and mining industry projects in SA, and the question as to why it is far less of an “apartment” city than Melbourne and Brisbane.


    • November 20, 2015 @ 12:21 pm Michael Yardney

      While Adelaide is a fantastic city to live in, it is not what I would call an investment grade location because there are minimal growth drivers compared to our four big capital cities


  2. November 23, 2015 @ 12:26 am Dom

    From a micro economic viewpoint your article does make sense. From a macro global economic viewpoint you make a strong case not to buy Sydney property. This is based on the US raising interest rates. The yield on 10 yr us treasuries is 2.4% this is expected to rise to at least 3.5% by end of 2016. Gross yield on Sydney property is 3%, net yield would be closer to 1.5% based on depreciation, agency fees, taxes etc. On this basis US treasuries and US blue chip bonds which are typically 1% higher at 4.5% would be better buys. Sydney prices rising at 5% per annum with a net yield of 1.5% are then no where close to the quality of US 10yr treasuries. I expect money will flow out of Australia into US treasuries and US blue chip company bonds. This will cause Sydney prices to fall which in turn will result in the rba lowering interest rates to zero which will cause the Aussie dollar to hit 55c to the USD. So yeah either no property crash but savers get smashed or property crash and taxpayers get smashed. Or better start praying because unless rentals increase 100% or property values rise at 6% pa the storm is coming. Also note that I think the Fed raised interest rates to late as US debt is enormous so much so a 1% rise in yield is gonna cause the US economy to tank much like Japan in the lost yrs but that is a story for another time.


  3. November 26, 2015 @ 12:01 am Kathy

    I’m a bit late to this conversation, but felt that a number of areas required comment.

    1. A depression or a severe recession unlikely. I and many other contrarian commentators disagree. I think a global depression or severe recession could be as likely as next year. The world’s economies are slowing and the pace since the GFC has been lacklustre to say the least. There are too many variables to list here and include factors such as the Baltic Dry Index, which incidentally is at its lowest levels in decades, but any or all of these can impact on Australia’s and the global economies. Given the amount of money many countries have printed we should have absolutely booming economies, but we don’t. We instead have sluggish growth and many countries failing to get traction and slipping into and out of recession. The very thing that saved us during the GFC, China, is now the thing that will impact the most on us due to their slowing economy. Whatever happens outside Australia will impact on Australia internally. Even the IMF is continually adjusting growth figures down.

    2. Unemployment levels low. Now seriously! Does any thinking person still believe the data massaged, manipulated, “seasonally adjusted”, watered down, made politically more palatable figure the ABS releases as the unemployment rate? The official figure is not measured the way it used to be, even as recently as the 1970’s. The Roy Morgan Research Study releases parallel unemployment level figures to the ABS. It’s figures paint a less rosy picture with unemployment at nearly 9% and the combined unemployed and underemployed figures as high as 17.4%.

    3. Interest rates rising. This one I agree with. Interest rates are unlikely to rise anytime soon. Actually, to quantify that, “official” interest rates are unlikely to rise soon. We should ask ourselves why interest rates are so low. Lowering interest rates are usually used by central bankers when a country’s economy is slowing or tanking, to try and stimulate it because confidence in the economy is low. Regardless of the fact that the last dozen interest rate cuts have not stimulated the economy and with each subsequent cut, the law of diminishing returns come into play (the effect is shorter and less effective), the RBA will likely cut interest rates again as our economy once again falters. There is a race to the bottom with low, zero or even negative interest rates thanks to currency wars and no country can actually afford to raise their official interest rates. The world’s economies are carrying so much debt, it is unlikely they can sustain an official interest rate rise, despite the US Federal Reserve Bank rumbling about raising interest rates one whole quarter of one percent possibly as soon as December. Also, it’s not up to the RBA to “save” those who borrowed too much and then find themselves over their heads when real interest rates rise (see point 5 below).

    4. A huge oversupply of properties. This is most certainly the case in most major capital cities, as rent seekers try to find yield due to low interest rates, and look for it through other means, such as multiple dwelling development to maximise returns. This of course leads to a glut of attached stock, such as we are seeing in Sydney, Melbourne, Brisbane and possibly even Perth, which also has a glut of commercial property. Several commentators are on record as saying we are building too much of the wrong stock. The type of housing of which we need more is detached housing, small lot housing, aged care housing and housing that allow people to age in their own single level, no stair homes. These are not being built, as our Councils and state governments have become lazy and dependent on the easy money to be made from constructing block after block of flats.

    5. Credit market illiquidity or a credit squeeze. Australians currently hold record debt (which I will expand upon further in point 11). This has been possible in part due to foreigners being willing to lend more to Australian banks, partly due to our higher interest rates. When our interest rates drop too low, or global events make foreign investors nervous and are then no longer willing to lend money to Australia, real interest rates could rise above and beyond the level the RBA has set official interest rates. This has already happened once again in part, due to the tightening lending criteria set by APRA. The ability of our banks to access foreign funds for lending is entirely outside of their control and as availability tightens, real interest rates rise.

    6. Robust population growth. Australia’s birth rate fell to 1.8 children per couple according to the most recent figures. It is heading to its lowest level in 20 years at 1.7 children per couple. We are not even replacing ourselves. Immigration is also slowing, and the type of immigrants is usually families. Families have lower housing requirements than singles, ie. one house can house a family of two or more as opposed to more single people requiring separate housing. This put downward pressure on housing requirements with less housing and rentals required.

    7. A healthy economy. Really? Based on what? Thanks to a slowing China, our mining boom is over, with record low commodity prices. We have a negligible manufacturing industry. Our service industries are struggling. Our governments and politicians would like to replace the mining boom with a construction boom, but all we build are more and more blocks of flats. We are not going to become wealthy selling properties to each other. This relies on the greater fool theory and eventually there is no greater fool. As the real unemployment and underemployed figures show, our economy is not really doing that great.

    8. A sound banking system. Once again, seriously! Our banks are overexposed to property, with some banks holding as much as 70% of it’s loans against property. Their investment in business, particularly small business, the real powerhouse employer, is negligible. They have belatedly begun to realise that if there are no businesses, there are no people to actually buy all these properties that are being created. How many people know that at least Westpac, Commonwealth, National Australia Bank, Bankwest and AMP among others, required bailout funds during the GFC under the US government’s TARP program? How many people realise that there was such a run on Australian banks during the GFC, that the Royal Australian Mint had to put in place emergency levels to print more money because the banks were 24 hours away from running out of depositor’s money? Australian banks sound? Those in the know definitely know better, but it suits the banks, central banks and politicians to keep up that illusion.

    9. Business confidence. This can change in an instant. All it will take is a black swan event, or something that is outside our control, such as acts of terrorism, acts of war (we have a threat right on our doorstep with China and its claim of sovereignty over parts of the China Sea) or something else that is unexpected and the confidence mood will swing the other way. Australia is a commodity producing country, just like Canada and Brazil. These two countries are currently in recession, and Japan just went into recession again.

    10. Consumer confidence. Ditto as for business confidence.

    11. A healthy level of household debt. And again, seriously, are you kidding! We currently hold record levels of household debt. We have half as much again as we had during the GFC, which was a debt crisis. A recent Barclays survey listed Australian households as amongst the most indebted in the world. The ABS reported Australian personal debt levels at $1.8 trillion for the country, or nearly $80,000 for every person. Household debt as a percentage of disposable income is at all-time highs at over 175%. That is definitely NOT a healthy level of household debt. If, as you report, some households have no debt, it means that others are grossly overextended.

    12. Property prices growth slowing. Property prices growth is slowing, and I believe we are reverting back to the mean of property prices increasing in line with inflation, which is what it does in a properly functioning economy. As we are now in what is most likely a low inflation and low interest rate environment, and which is unlikely to change in the near future, we are making our way back to the new normal. The parabolic capital gain asset price rises are only a product of the past 46 years since the decoupling of currencies from gold and the easy availability of credit. Before that, property prices, adjusted for inflation, were fairly flat.

    The point is, nobody knows what is going to happen in the future. Maybe property prices will crash and maybe they won’t. We could continue on as we have been for another 20 years, or it could all collapse in a heap next week. We do have a very large investment stake in what is essentially a non-productive consumption item and we are not immune from corrections. However, as Keynes observed, the market has the ability to remain irrational longer than we can stay solvent.


    • November 26, 2015 @ 8:33 am Michael Yardney

      Gee Kathy
      That’s a very detailed contribution – thanks – clearly we don’t agree on everything, but you’ve put a lot of thought into it


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