I think my broader point that I was nudging towards —and that fits Australia perfectly— is that these houses can only carry on getting more expensive while people can still buy them. We can still buy them because we're not limited to the mortgages our parents were. No bank manager in their right mind would have entertained a loan 6x gross annual salary in the 90s.
I see that Australia has a monthly repayment stress test threshold of 30%, but I can't see anything about limiting the principal. My theory is that banks started offering higher principal loans, with less security to unshackle prices. If more people can suddenly "afford" a $1m house, demand pushes the price up to $1.2m. Bigger loans. Bigger profits. If you're only looking at repayments in a time of low interest, that's going to cause a lot of irresponsible lending, and a lot of price inflation.
And in Australia this is particularly true because they're not just filling up with immigrants, they're deliberately poaching skilled workers who immediately hit the mid-to-higher-end house market, without the multi-generational lag of typically poorer, asylum-seeking immigrants. It's made everyone with property rich. It's made everyone with developable land insanely rich. And the economy there bubbles on with that cyclic investment. But what happens when you reach the cap and the lower working class can no longer afford to live there?
Immigration has only been so high because people can afford to move there. This keeps coming back to the money. All these problems are caused by finance.
I see that Australia has a monthly repayment stress test threshold of 30%, but I can't see anything about limiting the principal. My theory is that banks started offering higher principal loans, with less security to unshackle prices. If more people can suddenly "afford" a $1m house, demand pushes the price up to $1.2m. Bigger loans. Bigger profits. If you're only looking at repayments in a time of low interest, that's going to cause a lot of irresponsible lending, and a lot of price inflation.
And in Australia this is particularly true because they're not just filling up with immigrants, they're deliberately poaching skilled workers who immediately hit the mid-to-higher-end house market, without the multi-generational lag of typically poorer, asylum-seeking immigrants. It's made everyone with property rich. It's made everyone with developable land insanely rich. And the economy there bubbles on with that cyclic investment. But what happens when you reach the cap and the lower working class can no longer afford to live there?
Immigration has only been so high because people can afford to move there. This keeps coming back to the money. All these problems are caused by finance.