Australian’s need an intervention, a wake-up call – Australia is home to the only forty year olds in the world who don’t know what a recession is or what 10%+ interest rates feel like. 25 years of sustained economic growth off the back of a mining boom and a 38% growth in population has insulated an entire generation of Australian home owners from the considerations of a recession, rate hikes or price draw downs. A dangerous confluence of recency and anchoring biases have now taken hold of many Australian homeowners as household debt soars and real wages stagnate.

To add to these psychological factors, few sophisticated real estate markets in the world suffer from as much political influence on market pricing as Australia does. Generous tax breaks through negative gearing, restrictive residential zoning laws and first home owner grants have distorted property prices completely. These factors are strong political risks because they are all policies that can be changed overnight, but more importantly, they are factors that can be protected by politicians and voters alike even as they pose serious threats to the Australian economy.

Much has been made of the bubble like underlying fundamentals of the Australian housing market and while we agree with the assessment of the housing market as a technical bubble, we are concerned that it will be political rather than economic factors that prolong and then ultimately pop the bubble. With so many vested interests involved in the Australian property boom, with a strong home owning culture and with a lack of appreciation for the possibility of a market crash, many Australian’s consider their house’s as their largest store of personal wealth despite the clearly relative nature of house prices. Few Australian’s consider what the true cost of a house is in Australia. Australia is a wealthy country filled with 24 million people, many of them highly skilled, living in a country the size of Europe – so how can it be that a condo or a house can cost as much as 13 times the average yearly wage?

History demonstrates that there is no such thing as ‘this time is different’; Australia’s property bubble will burst; the question is whether it will be an orderly let down or a sudden pop. Unless the Australian government does more to address the issue both in terms of policy and message, we continue to see politics rather than economics driving the risk and uncertainty in the Australian housing market.