Unconventional wisdom: Is housing the anchor weighing Australia down?
Is might be time to just say no to buying a house.
Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.
Unconventional wisdom: Is housing the anchor weighing Australia down?
“The powers of uninterrupted usury are too great. If the accretions of vested interests were to grow without mitigation for many generations, half the population would be no better than slaves to the other half.”
- John Maynard Keynes
One of my favourite lines from Downton Abby was the dowager matriarch earnestly asking what a weekend was. The quote was representative of the disconnect between the English aristocracy and the workers.
It also showed how things were changing because seated at the table of the landed gentry was a commoner who – gasp! – had to work for a living. Change was one of the central themes of the show.
Downton Abby covered a period of economic upheaval for the aristocracy. There were several factors for this. England continued to industrialise. The House of Lords lost their veto. Taxes were raised to pay for WW1 and labour prices rose after the workforce was slaughtered in the trenches.
It became very difficult to support the upkeep on an immense country estate and a retinue of servants from the income of an unproductive agricultural operation. Within a generation the English aristocracy had become ‘house poor’. They were trapped in their gilded estates.
This is an apt metaphor for Australia. We are trapped by an obsession with residential real estate.
The winners and the losers in Aussie housing
It is obvious that in a narrow sense rapid growth in housing prices benefit those that own property and disadvantage those that want to own property.
I’m not interested in rehashing this debate which often splits along generational lines and has morphed into utter ridiculousness. Political parties contort themselves and defy common sense with proposals to make housing more ‘affordable’ without bringing down prices.
This is a sign of addiction. We know something is very wrong but can’t muster the will to change it.
Obscured by this moralistic intergenerational mudslinging about who had it worse is the real cost of high house prices on the country. The cost of housing is sapping the dynamism of the economy, lowering living standards and hampering our financial independence.
The antithesis of financial freedom
A Dominican monk named Girolamo Savonarola had whipped the Florentine masses into a frenzy. He preached an apocalyptic vision of a world on the precipice. And he knew who and what to blame.
The people responded to his calls for purification and on Shrove Tuesday 1497 they stacked artwork, books, ostentatious clothing, mirrors and musical instruments in a giant pile.
All these objects that were purported to promote sin were burned in a falò delle vanità or bonfire of the varieties. It was the title Tom Wolfe would use for his famous book exploring Wall Street excess and moral decay in the 1980s. Wolfe was making a connection between Wall Street and the conflagration of 1497. He had reason to do so.
The wealth that enabled the Florentine elite to acquire the objects of vanity was also a source of Savonarola’s wrath. And that wealth was built on usury or the lending of money for interest.
It was in Florence that banking began. That was because it was in Florence that double ledger accounting was invented and where Arabic numerals were adopted. The Medici family - among others - had made credit readily available across renaissance Europe. Soon these powerful banking familes were able to exert tremendous power over the rulers and church who overindulged on the available credit.
What so enraged Savonarola and his followers was the power exercised by those that lend money over those that borrow it. He would have a field day with Australia.
In Australia the total household debt as a percent of net disposable income clocks in at 216%. People in the US are not known for their aversion to debt. Yet Australian household debt as a percent of net disposable income is more than double the US. Globally we trail only Switzerland and the Netherlands – and not by much.
But don’t despair about Australia’s position on the podium. All we need is an uptick in housing prices and continued stagnant wage growth and we can overtake those free borrowing Swiss and Dutch and claim our rightful place as the apex borrowers.
We’ve been aiming for the crown for quite some time. In 1977 household debt as a percentage of GDP was 34.20%. In the third-quarter of 2024 it reached 111.50%.
Consumer debt is certainly a problem for some Australians. Yet the biggest household debt driver is growth in mortgage borrowings. According to APRA Australians have taken on $2.30 trillion in mortgage debt as of March 2025. This is large number considering our population size, the fact that only 67% of households own a home and 1/3 of all homes in Australia are owned outright.
Debt seems like a nebulous concept. Yet the amount of debt we’ve collectively taken on has made Australia ‘house poor’. Since 2021 real household disposable income per capita has fallen 10%. This is a measure of how much money is left over after tax, mortgage payments and inflation. In other words, the money you get to use to enjoy your life.
The reality is worse than the data shows. 2021 was an annomoly because there were huge COVID payments. Real household disposable income has been flat for a decade.
What was recognised by Savonarola is that debt is a form of servitude. Debt limits choice and - if anything - freedom is simply having as much agency over our lives as possible. Unlike Savonarola I don’t blame the lenders. As a society we are slipping on our own chains.
Housing is weighing down the economy
The John F. Kennedy School of Government sits just off Harvard Square in Cambridge Massachusetts and serves as the public policy centre at Harvard University. A research organisation within the Kennedy School called the Growth Lab has created an economic complexity index as a ranking mechanism for countries.
Economic complexity is a measure of economic productivity. The higher the economic complexity score the more leading edge and productive the economy is in a particular country. In practical terms this means that a high scoring country has the sophisticated knowledge needed to produce a diverse set of products and services.
Australia is not a high scoring country. And things have been getting worse. Australia currently rants 105th out of 145 countries assessed by the Growth Lab. Australia falls just below Botswana and just above the Ivory Coast in the ranking. The Ivory Coast is on the upswing and has risen fourteen places in the rankings in the last decade. Australia has dropped six.
Our stagnating productivity is not a secret. Many economists and politicians have been talking about it. For those that don’t know producitivty has barely increased in Australia since 2016. There are several proposals to improve productivity. Yet you don’t often hear about how high house prices may be contributing to this worrisome trend.
Research studies indicate that high house prices are making the problem worse in countries with low productive capabilities. I will quote from the Economic Observatory:
“…,in less complex economies, such as Australia, there are fewer investment opportunities. In such settings, property is the primary investment option for most households.
Research shows that there is a substantial and adverse effect of house prices on the growth of labour productivity in economies characterised by lower levels of economic sophistication (such as Australia and Greece).”
Being compared to Greece in economic terms is not a good thing. Although to be fair the Greeks might feel that way about Australia since Greece comes in at 47 in the Growth Lab rankings.
The hypothesis for why high housing prices sap productivity centres around four main areas.
Capital allocation
Having your capital locked up in a house is not productive. This goes for individuals and the overall economy. And when housing prices start to suck up more and more capital there is less for everything else. According to UNSW in 2020 58% of Australian household wealth is in housing. That compares to 28% in the US and 46% globally.
Ineffective labour markets
If house prices and rents are high many workers live far from areas with jobs. This may be a lengthy commute or moving from more productive cities to less productive regional areas. Long-commutes also sap worker productivity and mean less hours at work. All of this makes the labour market less effective.
High costs of housing divert spending
The cost of servicing mortgages and paying high rents means there is less money to spend on consumption. Australia has the third highest housing burden of OECD countries. Over 28% of Australians spend more than 40% of their income on housing. Across the OECD an average of 13.65% of people spend more than 40% on housing. We can call this the house poor index. Previously I outlined how this has hurt spending and living standards.
Building human capital
High housing prices can sap household resources that could be used on education and upskilling. Less educated and skilled workers are less productive workers according to multiple studies.
Where do we go from here?
Put down the pitchforks. I’m not going to propose some radical agenda to crush housing prices. That would be an economic disaster. Although a decade or two of higher wage growth and lower house price growth wouldn’t hurt.
But let’s ignore prices. This isn’t about how expensive housing is impacting the country. Although somebody in Canberra should do something about that.
This is about the financial decisions each of us make and how that impacts our lives. It is about how financial independence is only possible if you are prudent about debt.
The same things that high house prices are doing to the country are happening to individuals that have purchased houses recently.
I know how much pressure there is to buy a house. It is pitched as the only way to get wealthy, as a sign of adulthood, and a marker of success.
But it may not be right for you. And that is ok. We all want different things out of life. And we should all come up with our own definition of happiness.
From a purely financial standpoint I think prices are too high. Buying a house today makes no financial sense. Yes, your net worth will probably be higher if you buy a house.
But will your quality of life be better? Will you have enough money left over to live your life? Will all the wealth built up in your house ever be extracted to make your life better?
Perhaps the best way to reduce housing prices is not some governement intevention. Maybe it is just more people saying no to outragous prices.
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What i’ve been eating
I was in Bangkok last week and I had my share of wonderful street food. I also stepped it up a notch and went to a restaurant called Nusara. The dining room looks out over the gilded and jewelled roofs of Wat Pho. Each dish had the unmistakable flavours of Thailand. Pictured is a blue swimmer crab curry under crispy noodles. The green, red, and yellow are the three traditional Thai curries. An amazing meal.
