The Lucky Country’s Housing Industry is in Crisis

The Sydney Morning Herald reported on a Housing Industry in crisis yesterday with more than 363 companies from the building industry hitting the wall since January 1.

The Herald’s Adele Ferguson writes “What is even more alarming is the trend seems to be getting worse, with 30 building companies failing in March, 33 in April, 51 in May, 63 in June and a whopping 40 collapsing in the first 10 days of July.”

Today, the Housing Industry Association convened an emergency roundtable meeting in Parliament House lobbing the government for an immediate rescue package to save the industry.

Shane Goodwin, Managing Director of Housing Industry Association said “Economic conditions in the housing industry are the worst in decades”.

The lobby group pitched a case showing the residential property industry is worth $70 billion a year to our economy and the downturn is having a flow on effect to supply chain business, forcing further job losses. It appears some of the blame for the downturn is aimed at red tape.

The Lucky Country

While crisis talks were underway in Canberra, Reserve Bank governor, Glenn Stevens was addressing the Anika Foundation Luncheon in Sydney talking up Australia’s economic prospects with a speech titled “The Lucky Country”

Early in his address he said, “But some observers – admittedly not the majority – still harbour concerns about the foundations of recent economic performance and question the basis for confidence about the future. There are several themes to these doubts, but the common element is that recent relative success owes a certain amount to things that will not continue – to luck – and that our luck may be about to turn.”

One such concern is China, with Deloitte Access Economics releasing a report yesterday suggesting the mining boom will peak in two years’ time.

Another is house prices.

“Australia saw a large run up in dwelling prices and household borrowing until a few years ago. Some other countries that saw this subsequently suffered painful corrections and deep recessions, associated with very stressed banking systems.” Steven’s then asked, “Can Australia escape the same outcome?”

He reported house prices are down 30 per cent in the United States with some suggestion they now appear to have hit the bottom. In the United Kingdom, prices have come off 15 to 20 per cent and we are down around 5 to 10 per cent.

According to data he presented, Stevens believes, relative to income, house prices are today as affordable as in 2002. But, he also says it is hard to provide a definitive response to whether dwelling prices are overvalued.

His address today could appear to be some back pedalling from the “Glass Half Full” speech he delivered last month in Adelaide. At the time, he indicated the RBA should not try to “engineer a return to a housing price boom” after an “unusual” decade to 2007 during which real house asset prices per person appreciated at 6 per cent or more per annum.

But Stevens did warn today “It is a very dangerous idea to think that dwelling prices cannot fall. They can, and they have,” but adds “The point is simply that historical or international comparisons, to the extent they can be made, do not constitute definitive evidence of an imminent slump.”

Housing Oversupply

Housing lobbyists have always argued the concept that house dwelling prices do sustainably double every 7 to 10 years, despite other factors such as household income falling to keep up the pace causing deteriorating affordability.

The unusual decade of 6 per cent house price appreciation ended with the GFC and record levels of household debt.

For any septics questioning if house prices could sustainably double every 7 to 10 years, the industry was armed and ready with another fact – a shortage of houses would put a floor under house prices. It was common belief there was an acute shortage of homes in Australia.

To help understand and address this important issue, the independent National Housing Supply Council (NHSC) was established by the government in May 2008. After examining and analysing a myriad of statistics including the number of people occupying a dwelling, the projection was clear. There was a chronic shortfall of some 228,000 homes in Australia. We were simply not building enough.

But for some, the perplexing problem in recent months was why dwelling commencements had been falling since June 2010. Despite a shortage of homes, there was dwindling demand. In addition, the housing stock on the market was steadily increasing.

The answer was reviled with the release of the 2011 census data. The NHSC projections were based on the trend of number of occupants living in each dwelling continuing from previous census survey five years prior.

The GFC had caused a structural shift with households becoming more risk and debt adverse. With housing affordability at record lows, more people were cramming into fewer homes to help share the burden of rising living costs. The number of five plus households was surging.

As a result, Morgan Stanley researchers calculated there were just over 1 million fewer households and as a result our 228,000 house shortage has turned into a 341,000 oversupply.

This, along with housing affordability, now explains why the housing construction sector is in rapid decline. And that floor under house prices has evaporated.

While the housing industry lobby wants more stimulus, it is hard to see what it will achieve with today’s oversupply.

HIA’s Shane Goodwin said last night, ”Residential construction is experiencing its second recession in four years.”

The first residential construction recession started amid the GFC and was put on hold by the Rudd Government’s First Home Owners’ Boost. But when the boost ended at the end of 2009, and without continued support for housing, dwelling starts headed south little more than 6 months later.

I’ll leave you to ponder if luck was involved and if our luck may be about to turn?

But, It is a very dangerous idea to think that dwelling prices cannot fall.

» The Lucky Country, Glenn Steven’s Address to The Anika Foundation Luncheon – RBA, 24th July 2012.
» Industry gradually crumbling – The Sydney Morning Herald, 23th July 2012.


  1. Don’t worry,

    Apparently housing investment will take over from the mining boom….. also, we are going to experience continual growth of about 3% for at least the next five years. No way are we going to have a recession, no matter what happens in Europe or China, everything is fine.

    “Particularly in NSW, we’ve gone for so long without building houses that the vacancy rates are so low the rents are starting to move aggressively. Victoria is an exception. It has had better policies in place, meaning it doesn’t have the pent-up demand”


    My God, I’ve lost all respect for people in financial circles.

  2. Does that mean it will be cheaper to built a new house soon? In Canberra the cost to renovate or build a new house is ridiculous!

  3. Interesting coverage of RBA ‘official views’. Price prediction views properly hedged both ways I see as per usual . I think whilst insightful a much more newsworthy article is the recent abolition of a long running property related ‘tax rort’ for foreigners . Its called the LAFH allowance. This National disgrace created an unpublished , and as yet unnoticed price distortion.
    Favouritism of the cruelist kind enforced on locals (making family homes unaffordable) has been silenty running in the background under the radar of most people .

    Thanks to this policy Expats were claiming in some cases the eqivalent of 50% of their Australian rental costs back from ATO, whilst tax paying locals were subsidising the most wealthy of these Expats. I think that abolition of subsidised Exec Rents alone will ‘pop’ the ‘Executive Rentals’ market. Exec Rentals at inflated prices last two years especially out opf control was underpinning a massive distortion (puffing up) of rents beyond sustainable levels thus inflating prices paid especially in Sydney by ‘Investors’ /more like speculators.

    Why Sydndey especially distorted ? It’s where most of the higher income Foreign Expat Execs (finance, insurance, banking expats mainly locate in Sydney). Add to this the inflated value of the rebate in Sydney versus lower cost capital cities like Adelaide . This rort created a new sub-industry called ‘Executive leasing’. Read article front page smh Masion Rents to drop etc etc… LAFH allowance for foreigners gone as of Oct 1st 2012 . Expect now a return to a fair longer term equilibrium. My very own unedited unoffical non -RBA sanctioned prediction is :
    Top end Sydney rents will drop 20% more from here –
    Resale Top end prices down 20% more from here,
    Mid level prices and rents down another 15% from here.

    That leaves the current ‘Real Estate Speak-Afforable end ‘ Sydney anything still under 1million price (again a joke to be called afordable ) ..’Affordable’ Sydney down just 10% . View this price bracket as the meat in the distortion sandwich for now.

    Under 700k market -down Zero percent percent due to presistently stupid NSW Govt handouts.

    First home and New Home buyers beware, price drops will more than wipe out any
    stamp duty concession in hand today.

  4. Thanks for the article, a nice summary of a miserable situation. No one wants to take the pain as the HIA begs for more medicine.

    With expected rising unemployment the forced sales will add to the surplus creating a real nightmare. Maybe thats why Australia is running boats to import as many people as possible. If we let 10 million in problem fixed. Keep up the good work Juliar.

    Construction industry is a bubble waiting to burst and the ATO is throwing pins at it, by more and more compliance red tape that makes doing business impossible let alone making a decent profit.

    The start of the Olympics marks the four years since the global market turmoil started. It looks like its happening again now!

    Yoda advice – read some of Steve Keen’s work or Max Keiser on You tube and get out of debt !

  5. Valid point about China, what happens to Australias export of coal and iron ore, (the two most important mineral exports) when demand from China is reduced. The end of “good luck” no doubt.

    @duncan macpherson “foreigners” are a very small part of the demand for real estate in Australia. Who in their right mind would buy into this overvaled market! An ignorant ill informed few. I know our politicans like using xenophobia to distract us from the very real failings of our elected representatives but by buying into this arguement, you simply are allowing the problem to continue. Look at the facts not manufactured fictions that appeal to popular prejudice.

  6. @Fred re – @duncan macpherson “foreigners” are a very small part of the demand for real estate in Australia. Who in their right mind would buy into this overvaled market! An ignorant ill informed few. I know our politicans like using xenophobia to distract us from the very real failings of our elected representatives but by buying into this arguement, you simply are allowing the problem to continue. Look at the facts not manufactured fictions that appeal to popular prejudice.

    Fred, then you go buy Chinese RE with a 99 year clause to give it back. Idiot.

  7. This is a great blog. Been following it for years.

    In my opinion, Oz is going to be up shits creek without a paddle soon. House prices in Oz have gone nowhere since 2008, and home sales have plummeted. Some people just don’t get it. When the construction industry goes……everything follows. In the past 15 years i’ve lived in the UK, USA, China, Oz and little old Ireland and it always starts with the construction industry, then lay offs, bankruptcy etc…………like a stack of cards.
    Did Australians really think that they could just keep selling houses to each and produce nothing and that the false Chinese economy would just keep on stockpiling Oz minerals and resources.

    Wake up guys……The US is on its Knees, Europe is a disaster, China is slowing down…….get out of debt now if you can and pray you still have a job next year. Steve Keen is the only economist in Australia who knows what he is talking about. The rest are just bullshitters.

  8. The reason why it’s taking so long is because we the mug punters are propping up property market with our taxes. The poor old taxpayer coughs up for the First Home Bribes and Negative Gearing.
    Not to mention the political-media-property spruiking complex that won’t let the sheeple know about this whole scam.

  9. Australia is a corrupt country and the manipulation of the housing market by the government is proof of this. The ATO has committed more legalised crimes than all the prisoners combined. It is amazing that most people cannot see this…

  10. I love this site. As a full-time electrician in the industrial sector I must confess a very small minority of workers are aware of the types of discussions that occur at sites like this. Most people I talk to are waaaay to busy with mortgages, family, bills and work to have time to invest in researching sites like this. I like coming here for what I consider to be a very well rounded view. I also enjoy all the comments. Keep up the good work. Bravo.

  11. “Fred, then you go buy Chinese RE with a 99 year clause to give it back. Idiot”????.@ching no need to get abusive because you cant put forward a valid or logical agrument.Maybe you should go back to China you troll.

  12. Hey Replicate,
    I’m a sparky to, but not way too busy.
    You will most likely find it very hard to discuss the cold hard reality of things with the magority of work mates as they are pluged into the system and probably leveraged up into housing. Which means there taking a bet that prices will rise, and therefore will have a very biased veiw of the economy.

  13. ‘Australia is a lucky country, run by second-rate people who share its luck.’ A Quote by Donald Horne from his book called ‘The Lucky Country”written in 1964

    ‘The lucky country’ does have an ironic ring to it now as it did then doesn’t it?

    Typical of leaders hijacking cult phrases to represent their spin and gain the reflected glory and respectability of worthy and familiar statements of others.

    Is Glen Stephens giving his countrymen another congratulatory slap on the back confirming how well they have weathered the storm and confirming that the ship is on an even keel. Or was the Lucky Country reference a chilling ironic comment on the quality of our leadership.

    No industry to speak of, Australia has a hysterical interest in housing and the accompanying financial feeding frenzy of lenders and the self interest of politicians and their entourage.

    We dig stuff out of the ground and sell it. This is the boom that underpins our economy!

    We haven’t invested in industrial value adding and we haven’t invested in industry or its infrastructure. Our wages are high because our cost of living is high. Prices are high because the cost of real estate is high. As a result we are uncompetitive on the world stage.

    With no housing and construction investment to disguise our true economic position, we will soon able to see the Emperors jewels as his suit will become transparent. Around this time, the government will announce austerity measures to keep the country afloat, albeit close to the beach, and the banks will need the tiniest of bale outs. Tiny because Australia is different.

    Australia is different because we have surfed the wave for too long. A wave which is now very close to the beach. It is not the 50‘s any longer guys! There are a lot of very able hungry people out there beyond our shores. Its time for us all to wake up. If we don’t someone will remind us of another prophetic phrase which contained the words ‘banana republic’ and ‘arse end of the world’

    The phrase ‘The Lucky Country’ is about to mean again what Donald Horne intended – not a positive spin on our country’s abilities to win the crap game again and again against all the odds!

    A very disenchanted Australian.

  14. Seeing as Australia STILL has to import oveseas trained Graduates to do the work the Aussie contingent are either unable (or unwilling to do “for the wage offered”), just how many REALLY essential REALLY skilled workers will simply decide to return “home” once the going gets tough? Australia is full of the “semi-skilled” (and mightily overpaid semi skilled at that!) but the assertion in The Australian some months ago that “Australia punches well above it’s weight in high tehnology research” is based on what exactly?? It sure isn’t based on any semblance of reality.

    What will Australia do once the really skilled and really experienced depart? Maybe (just maybe) the Country will have to start paying experienced Graduates in the “useful and essential Professions” (i.e. NOT Finance and Financial Chicanery) a “satisfactory” wage – after all they HAVE “worked for it”.

    Because if Australia doesn’t, there’s always somewhere else who WILL, and for a renter in Australia, the “Quality of Life” elsewhere is starting to look FAR more attractive than “Down Under”, and that’s before the Aussie $ is devalued to its long term average (which it will be)

  15. @Calico

    Your post reminded me of a very famous historical comment made by the then Singapore prime-minister Lee Kuan Yew.

    “In 1980, Lee Kuan Yew, the outspoken prime minister of Singapore, famously warned that Australia was living way beyond its means and in danger of becoming the poor white trash of Asia.” He spoke of wages that were ridiculous for various types of labor and expectations that exceeded reality.

    The sad thing about this (which was dismissed at the time as pure racism and nothing more) is that I believe it is coming true.

    I really hope we get hit hard with a recession. I do disagree with you on the reason for a wages being high though, it is more a case of greed than living expenses, many Australians are exceedingly greedy, and that in its self tends to lead to abnormal rises.

  16. @Calico right on mate. The problem is our second rate leaders are allowing the economy to be hallowed out. Sure the argument of competitive advantage is valid but what happens when the terms of trade turn against resource providers, and all our manufacturing sector has vanished? A grime scenario but Glenn Stevens sitting on his million dollar salary sees no problem in allowing the manufacturing sector to be destroyed in Australia by allowing the value of the dollar to rise and rise. Stevens is the ONLY reserve bank governor in the world who does nothing to curb the excessive rise in the currency he presides over. No doubt he likes going on overseas holiday were the over valued Aussie dollar buys you more. LOL

Comments are closed.