Are falling house prices as bad as all that?

When property prices start to fall, you can guarantee that the pessimism peddlers will come out of the woodwork and start preaching that the end of the world is nigh.

The Australian media is great at sensationalizing the woes of our housing markets, with headlines declaring an imminent crash is on the cards or the “bubble” is about to burst.

This spirals into a cacophony of consumer panic and criticism directed squarely at the federal government, with the building industry and other self interest groups expecting the government to “do something” so we can all continue profiting from our properties and buyers can regain confidence to re-enter the market.

But according to a recent article in Business Spectator, if you look at the bigger property picture, falling house values are not necessarily the end of the world.

Last year ended on a less than positive note for Australian property values, with RP Data reporting a fall of 4 per cent nationally for 2011 and Brisbane and Melbourne experiencing a 7.5 per cent and 5.8 per cent market value decline respectively.

Interestingly their latest figures seem to show the markets have bottomed and the Melbourne market has in fact turned around.

Some will lose out.

While there are a handful of homeowners who do stand to lose out when housing prices do fall; like those who planned on selling their home to downsize or relocate; the vast majority of property owners are unaffected as they were not planning to sell.

The fact is it’s the lenders, property developers and real estate companies who are most threatened financially.

They see the natural cyclical downturn in the real estate market as a force that will eat into their profit margins and they tend to start shaking their fists angrily at the government to introduce further financial incentives for homebuyers, such as an increased first home buyer grant boost.

But others will be better off

However for those who are still on the outer, stuck in the rental rat race and unable to make a start up the property ladder, quieter times for the housing market can equal opportunity.

Then of course there are families who intend to upgrade into something bigger and better, migrants looking to buy a home and tenants who can rest easy knowing that their landlord is unlikely to pull the proverbial (and literal) rug out from under them and sell up any time soon.

Ironically, the very doom and gloom mongers who like to generate market panic when prices start to fall are also the ones who kick up the biggest fuss about affordability issues. They don’t seem to realize they can’t have it both ways!

The crisis of affordability.

In the last two decades, Australian house prices have quadrupled, while average household earnings have only doubled for the same period.

To put this in perspective, it is estimated that as many as 1.25 million low-income households are paying more than 30 per cent of their income on housing related costs, there are 250,000 people on public housing waiting lists and as many as 60,000 individuals who are homeless.

Author of the article and director of University of Tasmania’s Housing and Community Research Unit, Keith Jacobs, says all the hype around falling house prices tends to overshadow the true impact of affordability issues and the financial strain so many households find themselves under.

“The barrage of house price data reported in media outlets serves to shift our gaze from the inequities that underpin the housing market and the stress endured by so many low-income Australians” he says.

Jacobs claims that the government continues to fail in its responsibility to address Australia’s housing affordability crises.

And he says it’s largely because powerful industry groups including the finance sector, property developers and real estate lobby groups have been, “spectacularly successful in maintaining pressure on the policymakers to privilege wealthy homeowners at the expense of less well-off households.”

He cites research from the University of Sydney that details how subsidy arrangements favour well-off homeowners.

“If we include inputted rent and capital gains that are not subject to taxation, total government expenditure on housing stands at just over $53 billion per year, most of which ($45 billion) is expended in the form tax relief for owner-occupiers and rental housing investors ($5 billion),” says Jacobs.

“By contrast, those households living in rental accommodation are subsidised by $3.2 billion. For individual homeowners this subsidy amounts to around $8,000 per year, investors are subsidised by $4,000 while concessions to private renters amount to just $1300 per household and public housing tenants $1000 per year.”

Jacobs adds that Australian homeowners have developed an entitlement mentality, believing the value of their property should increase year in, year out and furthermore, they shouldn’t have to be slugged with tax on any capital gains they make.

And he points the finger squarely at the media for their role in failing to “make explicit the societal implications of the current housing arrangements.”


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit

'Are falling house prices as bad as all that?' have 3 comments


    March 15, 2012 Arek

    Hi Michael,

    Indicators are based on official ABS statistics, just converted to index values with Jun’86 as a base year: rental costs from 6401.0, incomes from 6302.0 and buying costs from 6416.0 (but discounted by prevailing interest rates). The most important is that the graph represents the reality very closely. If you compare real prices and costs from 1986 and now, they tell exactly the same story.


    Michael Yardney

    March 15, 2012 Michael Yardney

    Interesting graph Arek, thanks for sharing and I’m very impressed with the graph in your link.

    I’ve seen similar form the ANZ – what is the source of this one?



    March 14, 2012 Arek

    Yes, your are right Michael, that negativism is now present everywhere. It’s quite interesting to read media reports and expert commentary on the latest set of housing finance statistics – everybody seems to be focusing only on negatives but there is plenty of positives there as well…

    On the subject of affordability, I am of the opinion that price is of secondary importance since nobody buys property outright for cash. When people decide to purchase a house they first check if they can “afford it” – ie how much they can borrow and how much this will cost them per year. Only then they decide on the price range of the potential property! The cost is the key in the decision, not the price per se! And costs of buying have increased in line with personal incomes and rental costs over the last 25 years. The following chart illustrates the relationship very clearly:


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