The Credit Monster Which Is Strangling Australia!

As foreshadowed, housing has become a major battleground for the main parties, as record prices, an acute shortage of rental properties and high interest rates combine to significantly reduce affordability. We know that on an international basis, household debt to income ratios in Australia are significantly higher, than even New Zealand and Canada, who both have severe housing crises. Well, done Australia, a direct result of 30 years of bad policy, and overleverage. And weirdly even now, according to IFM data the surge in average loan sizes is behind the inexorable growth in Australian home prices.

Today I want to look at the latest data on new loans from the ABS, in a release which has now gone from monthly to quarterly, so data released this week covers the October to December quarter 2024. Talk about lagged data! The RBA gross debt levels for January reported a significant uplift, especially for investor loans, as I discussed in a recent post. “Is The RBA Really All In For A Rate Cut In February?”

On the way to this analysis though we need to pause on The Treasurers recent announcement that It will soon become easier for Australians with student loan debt to get a mortgage after Treasurer Jim Chalmers instructed the prudential regulator to relax how HECS was treated when banks conducted mortgage serviceability tests.

So we are seeing mortgage debt ballooning, to the benefit of the banks – see CBA’s recent results. When interviewed conveniently the CEO denied that growth in mortgage lending had any significant impact on house prices. But we know of course the strong credit impulse is one of the main drivers of home price growth, supported by greater demand from high migration, tax breaks for investors (many of whom are losing money on a cash flow basis) and lack of appropriate supply.

The whole housing issue is now an election battleground, with The Coalition opposition promising to allow home buyers to raid their superannuation savings for a deposit, and it has committed to watering down responsible lending obligations.

Both sides have policies which will boost housing demand and increase mortgage debt, driving prices higher. As a result, they would make the affordability situation worse.

Remember the word "mortgage" comes from the Old French phrase "morgage" which translates to "death pledge". The term refers to the pledge ending, or "dying", when the loan is paid or the property is foreclosed. Given the longer terms of new mortgages, and the later age of getting one, Mortgage defined as a death pledge has never been truer.

But then does ordinary Australians who want a home have any choice but to play this game? Frankly no, because the game is rigged!

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