Survey on Australian House Prices

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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175 Responses to Survey on Australian House Prices

  1. AntiMoralHazard says:


    Let’s ask some more questions.

    Will abol­ish­ing neg gear­ing cause rents to go up uni­ver­sally in Aus­tralia? Or some will go up, some go down and some remain the same?

    So what if neg gear­ing really cause rents to go up? Can’t we have direct rent sub­sidy to renters to compensate?

    If neg­a­tive gear­ing is to be abol­ished, what other pol­icy change needs to be accom­pa­nied? E.g. CGT treatment

    Will abol­ish­ing neg gear­ing cause a dooms­day house price crash?

    Or will it cause a slow defla­tion instead?

    Will a house price crash screw up the Aus­tralian economy?

    Do we need to abol­ish neg­a­tive gear­ing in one shot? Or can we have a phased abol­ish­ment instead?

  2. aus_ed says:

    This is exactly the right kind of ques­tions to be asked as search­ing for answers to those will expand the hori­zons! I don’t have those answers but would gladly con­tribute my time to get to the bot­tom of it…

    It could be argued that “paral­y­sis by analy­sis” is bet­ter than jump­ing to pre­ma­ture conclusions. :-)

    I am search­ing for some data on house prices, espe­cially those pre June 1986, to extend ABS time series for neg­a­tive gear­ing impact analy­sis. If any­one can con­tribute it would be very handy.

    Mean­time, this is quite an inter­est­ing “pic­ture” (see attached graph). It appears that:
    – between Jun 1986 and Jun 2001 gross dis­pos­able income tracked house price index very well;
    – house price increases between 2002 and June 2006 have pos­si­bly eaten into house­hold sav­ings; but
    – June 2006 onward is quite inter­est­ing… where this surge in net sav­ings is com­ing from? Can it be that the over­all wealth of Aus­tralians has grown dra­mat­i­cally in the last 5 years and, in turn, led to even higher prices?

  3. AntiMoralHazard says:


    Where do you get the data from?

    Why was 1986 cho­sen as the base year?

    What is ‘cumu­la­tive sav­ings’? Does it include the ‘equity’ in asset prices?

  4. AntiMoralHazard says:

    The point is, if equity in asset prices is included in ‘cumu­la­tive sav­ings’, then it becomes self-fulfilling prophecy. The higher asset prices, the higher the equity and there­fore higher ‘cumu­la­tive savings’.

    And remem­ber, asset prices are deter­mined at the margins.

  5. AntiMoralHazard says:

    And of course, those who ben­e­fits from the sta­tus quo will ben­e­fit from delays caused by analy­sis paralysis.

  6. aus_ed says:

    All data from ABS, recom­puted as index with June 1986 =100 (the date when hous­ing prince index starts — old series).

    Gross Dis­pos­abe Income” and “Net sav­ing” as defined in National Accounts (5206.0 — Aus­tralian National Accounts: National Income, Expen­di­ture and Prod­uct), Sea­son­ally Adjusted series, in $millions.

    Cumu­la­tive sav­ings” is the index derived by adding quar­terly net sav­ings over the period and defin­ing June 1986 as 100. The series if very volatile from quar­ter to quarter.

  7. aus_ed says:

    Resources price hike is one pos­si­ble expla­na­tion of Aus­tralians becom­ing wealthy (started in 2006 coincidently):

    And more on pos­si­ble prep­ping the audi­ence for the big announcement:

  8. AntiMoralHazard says:


    So, you include the gov­ern­ment and the ‘other’ sec­tor in your net sav­ings to derive the ‘cumu­la­tive savings’?

  9. kys says:


    Didn’t know you are back. Sorry for my late response.

    First, regard­ing the chart,

    It’s mis­lead­ing in 2 ways:

    –Dif­fer­ent Items — “Gross Dis­pos­able Income” and “Cumu­la­tive Sav­ings” are put together on the same base of 100, leav­ing us an impres­sion that Cumu­la­tive Sav­ings almost catch up with Gross Dis­pos­able Income. In fact, in numer­i­cal terms, Net Sav­ings are about 10% of Gross Dis­pos­able Income in 2010, sub­ject to sig­nif­i­cant revi­sions (highly likely). Between 2000 and 2005, sav­ings rates were about 0 (zero). They started ris­ing from 2006 due to an increase in house­hold incomes and a mod­est pace of house­hold spend­ing. Then we had GFC. Sav­ings rates were boosted by gov­ern­ment stim­u­lus pay­ments. So how much wealth has been accu­mu­lated since 2006? That doesn’t sound much.

    –Gross Dis­pos­able Income itself is mis­lead­ing in two ways:

    1. Num­bers of house­holds are increas­ing, so Dis­pos­able Income “per Dwelling” is much more mean­ing­ful, and com­pa­ra­ble to “House Price Index”

    2. Gross Dis­pos­able Income in National Account is a very broad mea­sure, not really suit­able for mea­sur­ing hous­ing afford­abil­ity, such as House Price To Income Ratio. Please type “com­pen­sa­tion of employ­ees” in Wikipedia for details.

    Finally, thanks for your sum­mary. But what a dif­fer­ence a sum­mary can make. I still hope peo­ple here patiently read thru every­thing to get a clear pic­ture. Oh! please read this arti­cle also:

  10. AntiMoralHazard says:

    And please join Steve Keen and David Col­lyer in this Face­book campaign

  11. aus_ed says:

    The graph is not worse than “mort­gage debt to GDP” variety. 😉

    If you insist on using “per house­hold” mea­sures it’s fine with me (eg. please review what Slaphappy is say­ing) but please, be con­sis­tent with your argu­ments. Good to see you are not tak­ing things on face value and I only hope you can apply the same scrutiny to both sides in this debate…

    Agree though that mea­sures used in eco­nom­ics are very often sim­plis­tic. Books can be writ­ten on lim­i­ta­tions of eg. hous­ing price index and its inabil­ity to reflect ade­quately true dynam­ics of mar­ket con­di­tions. So, let’s agree that “House Price Index” is a proxy for how house prices in gen­eral have changed over time. “Gross Dis­pos­able Income” is a proxy for a house­hold income and “Net sav­ings” expressed here as a cumu­la­tive mea­sure, is a proxy for house­hold sav­ings. Again, let’s agree these reflect in gen­eral what hap­pened to indi­vid­ual house­holds in the last 25 years. All are pre­sented as index so, show only rel­a­tive change over time and do not imply that “Sav­ings almost catch up with Gross Dis­pos­able Income”.

    I do not try to prove any­thing with this graph, rather, only high­light that:

    – house­hold income has grown, to a large degree, in line with house prices (the diver­gence from 2001 onwards still requires fur­ther inves­ti­ga­tion) so, sig­nif­i­cant part of price increase can be explained with ris­ing dis­pos­able incomes of Aus­tralians (some still pre­fer so see “huge increase in house prices” and “no growth in incomes”…)

    – house­hold sav­ings are grow­ing from Jun 2005 and house prices are grow­ing at the same time (sim­i­larly to Jun 1988-Jun 1990 but oppo­site to what hap­pened between Dec 1997 to Mar 2005 where both diverged – what changed?) Sav­ings are only a minor pro­por­tion of house­hold wealth, agree, but the fact they are grow­ing so fast implies peo­ple are start­ing to have lots of spare cash and put it aside for what­ever rea­son… some may pre­fer to buy houses as well, which could explain con­tin­ued house price growth – rather than “those greedy investors push­ing prices up”.

    This graph does not attempt to prove that ” cahsed up house­hold­ers push the price up” but in my opin­ion is enough to ques­tion a state­ment that “Aus­tralians can­not afford houses at those prices”… Add to this pic­ture a chart from a blog you ref­er­enced your­self that indi­cate “some­thing changed in 2005”, since investor mort­gages as a pro­por­tion of all mort­gages started to fall since then. Let me ask again, who then is dri­ving the prices up? Will you allow at least a thought that these may not be “greedy investors” as pre­vi­ously claimed in var­i­ous com­ments on this blog?

    By the way, I would like to put in per­spec­tive your state­ment regard­ing house­hold savings…ie. “that doesn’t sound much”. If you con­sider $74 bil­lion increase in sav­ings in the last 4 quar­ters as “not much”, how then will you describe a “sav­ing” of $3.5 bil­lion pa (or even $6 bil­lion) if neg­a­tive gear­ing is abol­ished? “Minis­cule”? “Irrelevant”? 😉

  12. Lyonwiss says:

    aus_ed April 28, 2011 at 3:03 pm

    You said: …“Net sav­ings” expressed here as a cumu­la­tive mea­sure, is a proxy for house­hold savings.

    There is no need to use the proxy, since there is a “House­holds Net Sav­ing” series in ABS 5206.0 Table 11, with series ID: A2302281C (for original).

  13. Steve Keen says:

    And I expect the def­i­n­i­tion of net sav­ings will show that it a resid­ual between dis­pos­able income and con­sump­tion, where con­sump­tion does NOT include debt servicing.

  14. kys says:

    1. Could you please review what I said to Slaphappy? “Your fig­ures seem to show interest-only loans with­out con­sid­er­a­tions on prin­ci­pal owed”.

    2. Gross Dis­pos­able Income is not a proxy for “House­hold Income” as the num­bers of house­hold are not con­stant, but rising.

    3. Cumu­la­tive Sav­ings are not a rea­son­able proxy for com­par­i­son with “Annual” House­hold Income.

    4. Ris­ing dis­pos­able income can not explain the “scale” of either nom­i­nal or real increases in house prices.

    5. You can not rely on me to explain your wish­ful think­ing:
    – Peo­ple are start­ing to have lots of cash. (Don’t they need to pay back debts? Don’t they need to be pre­pared for the rainy days?)
    –Some “may” pre­fer to buy houses.
    –So con­tin­ued house price growth is explained???

    I’m speech­less.

    6. Investor mort­gages as a pro­por­tion of all mort­gages started to fall, so investors are not push­ing prices up??

    I fainted when I read this.

    7. Thanks to Steve for help­ing me answer your last ques­tion. It’s all about debt, debt, debt.

  15. slaphappy says:


    Aver­age first home­own­ers loan / Aver­age full­time adult income ABS6302003J

    08/1994 Weekly income after tax $513.42
    Prin­ci­pal and inter­est on 80k ( 25 years ) loan @12% $194.32
    Ratio 37.85%

    05/2010 Weekly income after tax $1028.26
    Pin­ci­pal and inter­est on 275k ( 25 years ) loan @ 6.80% $440.10
    Ratio 42.80%

    Where does this sit in the hous­ing bub­ble narrative ?

  16. slaphappy says:


    ABS6302003 col­umn J aver­age full­time adult wages

  17. aus_ed says:

    Net sav­ings” is as per ABS 5206.0 but I opted for Sea­son­ally Adjusted series rather than orig­i­nal. Noth­ing in ABS def­i­n­i­tion about “debt ser­vic­ing”, or how is it accounted for, it may as well be “in” (have you got some more info on this Steve?):

    And since it is “net”, the fig­ures can be neg­a­tive (imply­ing reduc­tion in sav­ings), there­fore it has to be pre­sented as a cumu­la­tive measure.

    KYS, I give up … :-)

    I can’t resist not to ref­er­ence this graph. It appears that “loos­ing money” is only a recent phe­nom­e­non in prop­erty invest­ment (ie. last 7 years, and it looks that loses are dimin­ish­ing)… so, another myth busted that “prop­erty investors ALWAYS lost money and rip off the rest of taxpayers”? 😉

  18. kys says:


    I use Comm­bank Home­loan Cal­cu­la­tor and get this:

    05/2010 Weekly income after tax $1028.26
    Pin­ci­pal and inter­est on 275k ( 25 years ) loan @ 6.80% $478
    Ratio 46.49%
    for Owner-Occupied Stan­dard Variable.

    By the way, the cur­rent Stan­dard vari­able is 7.81%. I am by no means an expert on this amor­ti­sa­tion issue, but I think it’s quite stress­ful to have a ratio more than 30%.

  19. slaphappy says:


    I used the ANZ web­site cal­cu­la­tor as it let me set the inter­est rate.

    The oth­ers I tried used the default set­ting (cur­rent rates) for the loan prod­ucts in there menu.

    I used the 6.80 % rate as that was applic­a­ble to May 2010.

    Rates have obvi­ously var­ied over the period 5.21% 2008 — 18% early 90’s so this ratio would jump around alot but I would agree that for a sin­gle income earner a ratio above 30% would be stressful.

    The point I wanted to make was that in 2010 first home own­ers seem to be the same debt laden indi­vid­u­als as they were in 1994.

  20. aus_ed says:

    And one more chart for today… a per­spec­tive on “high house prices” in Aus­tralia in the inter­na­tional context.

    Is it pos­si­bly that we are just catch­ing up with the rest of the world? Con­sid­er­ing the state of our econ­omy, beau­ti­ful weather (hmm, maybe not recently but in gen­eral) and per­fect loca­tion, shouldn’t our cap­i­tal cities be amongst the most desired loca­tions to live in? Some food for thought…

    [prices as at June each year, based on ABS hous­ing data and UK equiv­a­lent, in A$ using ABS exchange rate tables]

  21. AntiMoralHazard says:


    Are you delib­er­ately try­ing to be amateur?

    Peo­ple in UK earn more in absolute terms.


  22. AntiMoralHazard says:


    About your net savings=wealth idea.

    Lets say you are deep in debt and your net worth is deeply neg­a­tive. What does it mean if your net sav­ings is positive?

  23. Philip says:


    Your graph makes no sense what­so­ever. An absolute com­par­i­son of the dol­lar value of prop­erty in Syd­ney and Lon­don tells the reader noth­ing — it is an apples and oranges com­par­i­son. One may as well com­pare the cur­rent dol­lar value of a bas­ket of stocks on the ASX with the NYSE, but it doesn’t make sense.

    What should form the basis of a com­par­i­son is by com­par­ing the cur­rent national mar­ket against fun­da­men­tals and long-term trends. A good place to start is the mul­ti­ple median, rent-to-price ratio, price-to-rent growth, pop­u­la­tion to con­struc­tion growth, mort­gage debt to GDP ratio, etc. This will tell us a whole lot more about what is really hap­pen­ing in our prop­erty market.

  24. ak says:


    I don’t think that you can defend neg­a­tive gear­ing along the lines that it makes peo­ple wealth­ier and lubri­cates the whole econ­omy. There is more I dis­agree with but I might be unable to address these issues because of time constraints.

    Can it be that the over­all wealth of Aus­tralians has grown dra­mat­i­cally in the last 5 years and, in turn, led to even higher prices? ”

    I strongly dis­agree with this argu­ment as it is based on fac­tu­ally incor­rect assump­tion. The “total house­hold sec­tor net worth” fell in 2007 and only par­tially recov­ered in 2010 mainly due to changes in asset val­u­a­tion not the amount of the assets. What your graph shows is what we can find on Graph C1 (depicted as sav­ing ratio not in absolute num­bers but the trend is preserved).

    Please have look at Graph C4. This is what we are talk­ing about — the “wealth”.

    NB the RBA paper presents quite inter­est­ing expla­na­tions of the change in sav­ing rate not entirely incon­sis­tent with what Steve was talk­ing about:

    The decline in the mea­sured sav­ing ratio dur­ing the 1980s and 1990s occurred against the back­ground of finan­cial dereg­u­la­tion, falls in nom­i­nal inter­est
    rates, a sig­nif­i­cant increase in the ratio of house­hold debt to income and a rise in house­hold wealth (includ­ing cap­i­tal gains on hous­ing assets). Although there was a fall in the share of national income that accrued to the house­hold sec­tor,
    these other fac­tors con­tributed to stronger growth in con­sump­tion spend­ing dur­ing this period.”

    The mod­er­a­tion in con­sump­tion spend­ing and cor­re­spond­ing rise in the sav­ing ratio appear to reflect a change in house­holds’ atti­tudes towards debt and finan­cial vul­ner­a­bil­ity, after a long period when lower inter­est rates and finan­cial dereg­u­la­tion saw a sig­nif­i­cant rise in house­hold indebt­ed­ness. Ini­tial signs of a change were appar­ent around the mid­dle of the decade, when there was a cool­ing of the ear­lier hous­ing boom. There appears to also have been a more sig­nif­i­cant change in atti­tudes and behav­iour fol­low­ing the onset of the global
    finan­cial cri­sis and the sharp fall in equity mar­kets and wealth, as well as the slow­ing in the domes­tic econ­omy in late 2008 and gen­eral increase in
    uncer­tainty (Graph C4). This change in behav­iour is appar­ent in other indi­ca­tors, includ­ing the increase in hous­ing equity injec­tion since the mid­dle of
    the decade and sur­veys that show an increased share of house­holds that believe bank deposits or pay­ing down debt are the ‘wis­est place for


    Net sav­ing — house­holds
    Is equal to gross house­hold dis­pos­able income less house­hold final con­sump­tion expen­di­ture and con­sump­tion of fixed cap­i­tal. House­hold sav­ing is esti­mated as the bal­anc­ing item in the house­holds income account. It includes sav­ing through life insur­ance and super­an­nu­a­tion funds (includ­ing net earn­ings on these funds), increased equity in unfunded super­an­nu­a­tion schemes and the increase in farm assets with mar­ket­ing boards.”

    Net worth
    In the national and sec­toral bal­ance sheets, net worth rep­re­sents the dif­fer­ence between the stock of assets (both finan­cial and non-financial) and the stock of lia­bil­i­ties (includ­ing shares and other equity). Because it is derived resid­u­ally, it can be negative.”

  25. aus_ed says:

    Shoot­ing from a hip is eas­ier than check­ing the facts… have a look at this next graph…

    Denial of facts will not make a case stand, I am afraid, but apolo­gies accepted 😉

    [Makes me think, how many more of those asser­tions, cir­cu­lated in the media and repeated in many com­ments on this blog, are just unsub­stan­ti­ated myths…]

    Philip, those ratios in wrong hands, or with­out deeper under­stand­ing of what they really mean, can be mis­in­ter­preted and mis­used. For exam­ple, it led to some­what mis­guided con­clu­sions that “what­ever hap­pened in the US have to hap­pen in Aus­tralia”. Uni­ver­sal “laws of eco­nom­ics” apply to all coun­tries equally but because each has a dif­fer­ent set of con­di­tions, the out­comes will be dif­fer­ent. That is the only valid expla­na­tion why we have such dra­mat­i­cally dif­fer­ent sce­nar­ios being played out in Greece, Ire­land, UK, USA, Ger­many, Aus­tralia, etc. … I don’t want to start argu­ment on yet another front so, I can only ask to open your mind and view EVERYTHING with a does of scep­ti­cism, unless you really con­vince your­self to the mer­its of a par­tic­u­lar position.

    @AK, I am not “stat­ing the fact” but by ask­ing a ques­tion I am “for­mu­lat­ing a hypoth­e­sis” that could be eval­u­ated fur­ther before draw­ing any con­clu­sions. I can’t open the pdf but thank you for putting your views across. Ris­ing sav­ings are just a man­i­fes­ta­tion of “things” that are hap­pen­ing in Aus­tralia. With­out deeper under­stand­ing of what those “things” are, any asser­tions that “neg­a­tive gear­ing = exu­ber­ant prop­erty prices” is just a spec­u­la­tion, in my opin­ion, as there may be other, more promi­nent fac­tors dri­ving the prices up.

    [This graph shows Aver­age Weekly Earn­ings, full time adults, whole econ­omy, as at June each year, May for Aus­tralia, recom­puted to A$, sourced from ABS and ONS in UK. For those who missed the what is dis­cussed — this and pre­vi­ous graph demon­strate that Lon­don has much higher prop­erty prices than Syd­ney, despite lower AWE – just to put “expen­sive” into perspective…]

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