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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