Australia: Housing bubbles and declining business investment

The Australian housing bubble is alive and kicking, with house prices growing at close to 10% per year.

House Prices

Loan approvals are climbing, especially for owner-occupiers. Fueled by record low interest rates.

Loan Approvals

Causing household debt to soar relative to disposable income.

Loan Approvals

Business Investment

Nominal GDP growth of 6.34% for the 2017 FY is a rough measure of the average return on capital investment.

Australia Nominal GDP

With a mean of close to 5% over the last two decades, it is little wonder that business investment is falling. Not only in mining-related engineering but in machinery and equipment.

Australia Business Investment

Capital Misallocation

More capital is being allocated to housing than to business investment.

Australia Credit Growth

Returns on housing are largely speculative, premised on further house price growth, and do little to boost GDP growth and productivity.

The result of soaring house prices and household debt is therefore lower business investment and lower GDP and wages growth.

Australia Wages Growth

You don’t have to be the sharpest tool in the shed to recognize that soaring household debt and shrinking wage growth is likely to end badly.

8 thoughts on “Australia: Housing bubbles and declining business investment

  1. Mark says:

    Im with you Colin.

    But attempting to predict the future direction of house prices, whilst important, is probably a massive distraction from what i perceive to be the real issue..

    The real issue that we should be addressing, is this simple question.

    Are high house prices, good or bad for Australia and Australians on balance?

    Then whatever we conclude, we should implement polices that support that conclusion.

    House prices are purely a result of policy.

    • Mark says:

      Ps, as an sme owner, i can attest to the crowding out effect… banks are still really only intetested in resi lending… anything else is seemingly to hard..
      Business lending is ok…. AS long as u can secure it with property……. so its not really business lending anymore is it…
      Yes, we are mis-allocating capital as a country in a big way..

    • ColinTwiggs says:

      Agreed Mark,
      House prices are a result of policy. Makes you question the capability of the people setting policy.
      Whether the housing bubble is good or bad for Australians — clearly the answer is negative. The further you distort a market away from equilibrium, the more dangerous the potential backlash becomes.

  2. tonytran2015 says:

    May I disagree. The housing market may not be a bubble market as there will be plenty of new buyers!

    Chinese people traditionally pay a very to an outrageously high percentage of their income into housing loans.
    The Australian economy is being transformed into a Chinese dominated economy and house prices will be a high percentage of available capitals.

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