Household equity and debt

To me next year is all about debt.  This of course will influence the housing market.  

Weak incomes and already high debt leverage are constraining further borrowing.  

This is illustrated by the fact that despite the lowest mortgage rates since the 1950s, the debt-servicing ratio for households is near its 2008 peak, back when the cash rate was 7.25%.

And in case you have somehow forgotten the current cash rate is 0.75%.

Debt is now growing faster than income.  

As a result, the average household gearing now stands at an all-time high of 200% of annual income.  By way of comparison, the average leverage was 120% in 2000.

Gauging leverage from a different perspective, mortgage debt has risen – on average across the country – to 30% of the value of the housing stock, meaning that housing equity has fallen to 70%. 

Now many may think that 70% equity is great news.  

But the RBA reports that at least 75% of small business loans are collateralised, with about two-thirds of this lending secured by housing.  

This substantially reduces the equity positions of many households.  

The table below looks at the estimated average household debt and equity by each Australian state and territory.

Average household debt and equity

State or territory Household debt Household equity
New South Wales 190% 75%
Victoria 215% 73%
Queensland 185% 65%
South Australia 155% 69%
Western Australia 190% 59%
Tasmania 130% 75%
Northern Territory 110% 55%
Australian Capital Territory 110% 70%
Australia 200% 70%
Matusik + NAB.  Financial 2019.

High debt levels leave many Australian households susceptible to economic shock.  It’s a double edged sword if you run a small business.

And lets hope that 2020 isn’t a shocking year.

I don’t know about you, but Christmas at our joint will be tight this year.  

Overseas buying

Most of the promoted price growth, of late, is mostly taking place in Sydney and Melbourne. 

Many are trying to couch the reasons behind this price growth – lower interest rates, federal election outcome, improved housing affordability, some loosening in loan servicing, rising auction clearance rates – in terms that would influence all housing markets, not just Sydney and Melbourne. 

For mine, just like the previous price surge, the main reason for the current promoted heat in the Sydney and Melbourne housing markets is due to Chinese buying and much of that money is coming from overseas.

This, in turn, has sparked, again, local FOMO (fear of missing out). 

Notably any gains that have been actually made are localised to trophy suburbs and within these areas, prized homes. 



China’s hidden capital flight surged to a record high in the first half of this year, suggesting that residents wanting to move money abroad are using unrecorded transactions to evade tight capital controls. Much of this money finds its way into overseas housing. Sydney and Melbourne are target cities.

The “net errors and omissions” in China’s balance of payments – widely seen as an indicator of concealed capital flight – rose to a record high of $131 billion in the first six months of this year. And it is estimated that this amount could exceed $300 billion for calendar 2019. Another record. 

It is little wonder given the recent events in Hong Kong and across mainland China.

Also, a large part of the Chinese culture is about saving face and perception. They aren’t really interested in second tier cities, let alone in a regional town or a suburban based municipality. 

It is their perception of a prime location and property that matters. This trend is evident elsewhere in the world.

Surfing with a putter

One of the better things I have read this year was a short piece by Seth Godin titled Golf or Surfing.

In short, golf is a game of rules, regulations and pin placements whilst no wave is the same.  Our world is increasing like surfing.  The world of golf is on the wane.

And with this in mind, I segue to recent happenings in Queensland – Brisbane townhouse restrictions, new development carparking allocations and the state-wide proposed residential tenancy changes.

Of course, there is the usual pistol duel at 50 paces on each issue – with the housing industry advocates calling it Armageddon whilst the relevant government authority replying that it is the “will of the electorate”.

I don’t think any of us really know the future impact of such changes, except to say that, if implemented, there will be changes.  Some good, others bad and on both sides of the fence.

But in an increasing wayfinding world, we need more flexibility not rigidity.

We seem to be stuck in the wrong mindset.

It gets a lot easier if you bring the appropriate attitude.

There is little need to set the pin placements in the most difficult position on the green.  They definitely don’t need to be set in concrete.

It’s hard to surf with a putter.

And my second segue this post is to 

Such housing solutions provide households and investors with control and flexibility.

They are a surfboard. 

Spare parts

There is often a build-up of stuff that comes out of our consultancy work which I think is worth sharing.

Here are three tables that I think are worth sharing.

Table 1
Capital cities: Household income and house affordability 

Capital city Median household income Median detached house price % income needed to pay mortgage 
Sydney $148,750 $877,000 36%
Melbourne $125,500 $701,000 35%
Brisbane $116,250 $544,000 29%
Adelaide $107,250 $471,000 27%
Perth $133,500 $475,000 22%
Hobart $101,500 $458,000 28%
Darwin $155,000 $485,000 19%
Canberra $140,250 $688,000 30%
Capital cities $130,500 $645,000 31%
Matusik, Price Finder + ABS 41300.  Matusik estimates.  Year ending September 2019.  Based on a 90%, 25 year variable principal and interest owner occupier loan from a bank.  As at October 2019 the applicable annual interest rate was 4.8%.

Table 2
Capital cities: Median weekly rent and gross rental returns 

Capital city Median weekly house rent Median detached house price Gross 
rental yield 
Sydney $680 $877,000 3.9%
Melbourne $530 $701,000 3.8%
Brisbane $460 $544,000 4.2%
Adelaide $400 $471,000 4.2%
Perth $440 $475,000 4.6%
Hobart $435 $458,000 4.7%
Darwin $505 $485,000 5.2%
Canberra $630 $688,000 4.6%
Capital cities $500 $645,000 3.9%
Matusik, Price Finder + SQM Research.  Prices as at year ending September 2019.  Weekly rents as at September 2019.  Based on dwelling being rented out for 50 weeks of the year.

Table 3
Capital cities: Average new house size + value of approved detached house

Capital city Average size Average price Average $/m2
Sydney 279 $361,500 $1,295
Melbourne 261 $373,250 $1,430
Brisbane 228 $289,250 $1,270
Adelaide 207 $269,000 $1,300
Perth 278 $289,000 $1,040
Hobart 171 $299,250 $1,750
Darwin 200 $350,000 $1,750
Canberra 269 $376,500 $1,400
Capital cities 254 $332,750 $1,310
Matusik + ABS unpublished dwelling approvals data.  June Qtr. 2019.


Several people asked me for the data in table 1, as I raised the need for a better measure of housing affordability in a recent post.  Revisit that post here.

Table 2 shows just how poor the generic detached house performs when it comes to rental returns.  Little wonder that dual+ occupancy homes are in rising demand and so too are backyard home solutions.

Now if only the planning fraternity and local government authorities would endorse what the market wants.  They will.  It just takes time.  They just seem to be a bit behind the times.

In the past that rang true with regards to small allotments, inner city living, medium/high-rise apartments and I reckon the same will apply to urban infill, backyard solutions and maximising the use of each suburban housing allotment.

The ideal metric here, should be people per hectare, urban planners, not dwellings per hectare.

Table 3 shows that it is very expensive to build in Hobart and Darwin but much cheaper in Perth and Brisbane.  These figures are for the basic detached house.

Also building costs are currently rising above inflation – and when you factor in the rising cost of urban land on a rate per square metre basis – it makes perfect sense to get more people living in each dwelling and having more residents occupy every title of land.

We need to change our dwelling designs and how we configure dwellings on new and existing allotments.

Nothing scary here.  It is really very simple.  It used the be then norm not that long ago.  The market wants it to return.  The building industry and, more so the regulators, need to understand this.

What’s needed is a shift in mindset.

That is one of the big challenges for 2020.

How best to facilitate infill development and maximise our suburban allotments.

Alone + Together

I am old enough to remember, fondly, seeing Bob Dylan and Tom Petty and the Heartbreakers at Lang Park in 1986 on their Alone + Together tour.

Bob was dressed in black leather; Tom was smoking the biggest joint I had even seen.  Many in the crowd were smoking wacky tobaccy that day too.*  The cops were are sixes and sevens.

Fast forward to late 2019, Tom has left us, it amazes me that Bob is still around and many of us live either alone or together.

Capital cities: Proportion of lone person + multigeneration households

Capital city Lone person 
Multigeneration households
Sydney 22% 19%
Melbourne 22% 16%
Brisbane 22% 16%
Adelaide 27% 11%
Perth 21% 13%
Hobart 32% 11%
Darwin 10% 16%
Canberra 24% 12%
Capital cities 22% 16%
Matusik + 41300.  Financial 2018.

One in six households live in multigenerational configurations, whilst one in five of you – lucky buggers! – live alone.

I have done considerable work investigating both household segments.

The size of both camps is predicted to increase, and for multi-gen households considerably, over the next decade.

Also, both household types complain that their current abodes don’t cater well for their living arrangements. Multigeneration families want more separation between adult children, parents and/or grandparents.  Loners often don’t want a big place.  They want something good, flexible and cost efficient.

I have been writing about such themes for some time and whilst words are fine, action is better.

So, I have started  

* And for the record I never inhaled!

Moving less

People appear to be aging in place.

The latest statistics suggest that homeowners are staying in the same digs, on average, for 11 years.  This is up from 7 years a decade ago.

That’s a 59% increase.

My chart shows that this increase is widespread.

The high and rising transaction costs plus limited affordable housing options for downsizers is seeing many stay up.

Owner residents and investors alike are also confused as to where to invest.  So, both segments are increasing opting to improve their current abode or investments.

This is a new housing black – renovations and additions.

The pressure for sensible backyard housing solutions continues to build.

That’s why I have started

First home buyers – Part 2

A few weeks ago, I posted about the first home buyers.

That missive drew quite a few comments, many in support – thanks – and some not so supportive.

Several asked me for a chart showing the long term trend between the money lent to first home buyers versus investors.  Others wanted to know how many loans are made to first home buyers each year.  And a few lost souls wanted to know what I would do to help improve the situation.

So here is my reply and I have included two charts in this follow up post.

Some observations

1. Between 50% and 60% of the money borrowed to buy housing in Australia is lent to second or subsequent owner residents.  How the remaining monies – when excluding refinancing – is distributed between first home buyers and investors has changed dramatically over the last three decades.  Investors these days get the lion’s share.  Revisit chart 1.

2. Over the last 25 years some 110,000 households – on average across Australia each year – bought their first home each year.  Revisit chart 2.

3. In recent years there have been 4 investment loans to 1 first home buyer mortgage.  Given that some investors do not borrow to invest, this ratio is likely to be closer to 5 or 6 to 1.  In the decade prior to the halving of capital gains tax in 2000, the ratio of investment mortgages to first home buyer loans was 2 to 1. And this relationship was largely 1 to 1 through the 1950s to late 1980s.

4. As a proportion of the 25 to 34 age household segment the first home buyer activity shown in chart 2 varied between 7% and 15% depending size of that segment and number of first home loans over the last 25 years.

5. Interestingly, the average in the 1990s and before any first home buyer assistance was 10%; during the 2000s when the First Home Owners Grant and subsequent Boost were introduced it averaged just 12% and since 2010, it has fallen back to 8%.  It rose to 15% during 2009 and was 11% in fiscal 2018.

6. Of note is that it took the GFC, in 2009, to see the highest number of first home buyer loans in any one year in Australia.  Also, in financial 2018, some 145,000 first home buyers secured a home loan.  Again, revisit chart 2.

7. So, when investors pulled out of the market like they did during the GFC and in more recent years, the banks filled the void, illustrating that loans to first home buyers can be done, it is just that, in my simple mind, investors crowd them out.

Looking forward

Forget the official definition of a recession, a large portion of Australia is already in an ‘income recession’ and many more are about to enter one.

At first glance, therefore, it makes perfect sense that the RBA cuts interest rates.

However, whilst the intention is to help boost employment, in reality, rate cuts incentivise businesses to invest in technology that displaces jobs.

As revenues fall, businesses are forced to find cost effective solutions and automation is high up on the list, especially when tax rebates apply.

Taking a wider view, one of the major reasons why interest rates are low globally is because jobs are being displaced by automation, robotics, digitalisation and the internet of things.

And so, we are stuck in a vicious circle, where central banks cut rates, further incentivising investment in technology that displaces jobs, forcing central banks to cut rates further.

Of course, rate cuts also help lift the price of real estate which benefits those who already own assets but does nothing for those without such assets.  And so, rate cuts widen the inequality gap and really do hurt first home buyers.

The federal government’s planned first home deposit scheme, which starts in January next year and is income dependent plus capped at certain price points depending on location, will do little to really assist first home buyers.

In most part, house prices will rise beyond their capacity to borrow.

And besides all these schemes do is bring the activity forward – revisit chart 2 one last time – and hence distort the normal building/property cycle.

What’s needed 

Below are some things worth thinking about.

1. Get the ratio of first home loans to investment loans back to where it was in the early 1990s.  This can be done by a carrot or a stick.  The carrot is incentivising financiers to do more business with first home buyers.  The stick is to place a brake on investment loans.  We need to stop artificially fuelling house price appreciation via first home grants, boosts and deposits.

2. We need to build more homes but the right type of homes.  We need to encourage more appropriate dwelling forms across the country and especially in our middle ring suburbs.  Revisit this post.

3. Provide substantial tax cuts for those on lower to middle incomes.  These earners spend a high proportion of their income and cutting their tax rates increases the flow of money through the economy.  Dropping interest rates, given the current circumstances, is having the opposite effect.

4. More spending on appropriate infrastructure projects – like the recently announced NSW school maintenance program or much needed new bridges crossing the Brisbane River. Such initiatives are more immediate, more equitable in terms of benefits and employs more people than the typical big white elephant road or rail project.

5. Have the RBA meet once a year – in June say – and set a course for the year.  If these cats cannot forecast and plan out the year ahead then let’s employ someone that can.  We need fewer distractions, more focus and certainty.

For my full overhaul list revisit this post.

And thanks to Roger Montgomery for some key thoughts here.

New housing construction

Some $100 billion was spent on new housing construction across Australia last year.

New housing construction work done

State or territory 2018/19 distribution Change on year before Unemployment rate
Sept 2018 Sept 2019
NSW 35% -2% 4.4% 4.5%
Vic 32% 6% 4.6% 4.7%
Qld 16% -11% 6.0% 6.5%
SA 4% -1% 5.6% 6.3%
WA 7% -8% 6.1% 5.7%
Tas 1% 15% 5.9% 6.2%
NT 0% -37% 4.5% 5.6%
ACT 3% 20% 3.6% 3.5%
Australia 100% -1% 5.0% 5.2%
Matusik + ABS.  Value of Building Work Done, Chain Volume Measures, Seasonally Adjusted

Some locations are doing better than others.  Where building is strong, so too are employment numbers.  Where less home building is taking place, jobs losses are more common.

With one in four jobs – directly and indirectly – involving housing construction we need new builds and major renovations to keep many of us in work.

So, are we really going to drop the migration intake?

And if so, what will replace the housing market as a major economic driver?

Of import too is when will we start building homes than more can afford?


Oh, silly me, I shouldn’t distract attention away from the latest auction clearance rates. Besides the daily housing index is spruiking clear skies ahead, what with SEQld always following Sydney’s lead.  Also, the cash rate is falling.  Plus, our banks are too big to fail. Anyways the new first home buyers’ scheme will see a big kick start to 2020.

Online Surveys

Whether it is what is the most liveable place or which suburb has the best whatever, the digital world has encouraged many to poll almost everything.

And as the Hot Chocolate 1978 hit goes, Everyone’s a winner, baby.

But these polls do lie!

It pays to remember when you see the results of an online survey or poll, or when you participate in one, that:

1. All open access online surveys are essentially inaccurate, because the group that takes the time to answer the questions is usually quite different from the general public.  The respondents to such polling are even quite different from the intended target audience, despite what the Facebook algorithm says.

2. Don’t confuse a survey or poll with a census.  A survey asks a randomised group some questions and then seeks to extent the answers to an entire audience as a whole.  A census, in contrast, seeks to ask everyone in the audience.

Now you don’t need to undertake a census, what you need is to survey an appropriate representational group.  That takes time and much effort to amalgamate.  The Matusik Missive subscribers are, proudly, an example.

3. Most online surveys or polls are what is called a ‘push poll’.  The actual question asked and especially the way that it worded often changes the way the respondent feels and hence how they reply.

Two ways 

Moving forward there are two ways to best figure out how people feel or what they think.  These are, in my experience:

1. Undertake a focus-group workshop.  Time must be taken to get the right people in the room.  You are gathering people together to watch what they do when given a choice.

Also, it often works best to introduce the key topic to help start the discussion and sit back and observe without any further interference. This is what Australia’s grandfather of market research – Hugh Mackay – does.

2. Undertake an open-reply survey.  Again, time needs to be taken to make sure you send this poll to the right people.  You ask them for a few details and ask them to reply – however they like – to your key question/s.

In both cases you get to see what is said (or written) when and with what amount of conviction.  You also get to see, and read, what isn’t said, which is also very telling.

PS Thanks to Seth Godin for some key thoughts here.

First home buyers

Lots of absolute toss is written about the first home buyer in Australia.

And the commentary varies in the extreme – from how active they are; to how lazy they seem and that they want everything on a silver platter.

And now the Federal government has unveiled their scheme to help up to 10,000 first home buyers on low and middle incomes enter the market each year from January 2020.


I have enclosed two charts and a table in this post that I reckon sums up the real state of play when it comes to buying your first home down under.

Top 5 reasons why early adults move back home

Reason Percentage
1. Trying to save money 50%
2. Convenient to my/our current needs 25%
3. Happy to live at home 21%
4. Want to move out but can’t afford it 20%
5. My job isn’t secure enough to leave 20%
Matusik + AHURI.  Age group 25 to 34 years.  Multiple answers given.  2019 Survey.

These charts and table are something we shouldn’t be proud of.

In most places, today, more money is lent to investors than first home owners. Western Australia and Northern Territory are the two current exceptions.  When I started in this business it was rare than investment loan totals exceeded that lent to first home buyers. Something is wrong here if you ask me.

The FHOG and FHOB was great politics but shit house policy.  Ditto to the current proposed scheme.  They inflate prices, distort the building cycle and have helped reduce – dramatically – the proportion of first home buyers.

Many young adults are now stuck at home.  Burdens all round.

Those of us – with children in the 20s and 30s – should really hang our head in shame.  My bad too!

For the most part, we will leave our children (and probably our grandchildren too) worse off, economically, than we are.

We are the first generation, in over 200 years in this country, to achieve such a feat.

Little wonder why they the younger generation are starting protest?

Big changes are coming.  Are you ready?

I will leave you with this Confucius truism.

The strength of a nation derives from the integrity of the home.

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