Housing horror stories are not based on facts

Strictly speaking, there’s no housing affordability crisis. If houses weren’t affordable people wouldn’t be buying them. But they are buying them, in droves. Over 50,000 home loans have been approved every month this year, above the average for the past decade.

Are homes too expensive? Too right! I’d like to pay less for a nice house in Sydney, which has been 40 per cent more expensive on average than even Melbourne, the “world’s most liveable city”, since the early 1980s.

Are we borrowing so much to buy property that we’re imperilling our economy? That’s harder still to answer.

Yet the ABC’s Four Corners program this week made it sound like a collapse was around the corner, jumping on the oldest bandwagon in public debate: the great Australian housing bubble.

Viewers expecting something balanced would have been left disappointed. Every pet shop galah has been talking about a housing crash for years. Every regulatory man and his dog have been warning buyers to be careful and issuing reports.

The ABC program opened with supposedly startling revelation that Australians have two dollars of debt for every dollar of income on average. So households on $80,000 have a $160,000 mortgage? That doesn’t sound very scary.

Viewers learned Australia has the second-highest level of household debt in the world as a percentage share of GDP, but not which countries were in first and third place on that score: Switzerland and Denmark. Hardly basket cases!

Viewers learned that mortgage brokers and bank salespeople have been incentivised, strongly in some cases, to sell mortgages. No, surely not? They didn’t learn that banks had already started changing their remuneration structures following former public service chief Stephen Sedgewick’s recent review.

Viewers discovered that buying an investment property 4000km away on a whim, after taking a phone call from a salesman, is probably a bad idea. They also learned that 74 households in Nambour were “at risk” of default over the next year.

Neither ANZ’s Shayne Elliot — the only chief executive with the courage to appear on the program — nor the government can be blamed for individual foolish decisions.

They even wheeled out Gerard “it’s a powder keg” Minack, renowned “perma-bear” among local economists for his continual predictions of economic collapse. Seven years ago Mr Minack noted that Australian house prices were “expensive on every value metric … relative to history, and relative to houses in comparable countries”. They have almost doubled since then.

He told Alan Kohler on the ABC in 2009 that the benchmark US stock index was about to fall to 750. “I think people are far too optimistic. I’m not even sure they know how far they’re going to drop in the near term,” he said. The S&P500 never dropped below 900, and is now at 2444.

Leaving the value of the properties people are buying out of the story was also a bit cheeky. Statistics show the ratio of household debt to the value of households’ assets has been steadily falling to 20.5 per cent, which is the lowest share since 2007.

Households might have almost $2 of debt for every dollar of income, but they also have more than $9 of assets. Let’s keep things in perspective. Nor did the strain of households’ interest payments get much scrutiny. As the Reserve Bank and others have pointed out, the share of households’ disposable incomes going on interest payments has fallen to about 7 per cent, down from 11 per cent in 2008 and is at the lowest sustained level since 2003.

To be sure, interest rates and unemployment could surge as house prices collapse. A broken clock will be right eventually.

Jonathan Tepper, a brilliant London-based investor whose analysis of lax lending standards last year sent shudders down the spine of Australian regulators and investors, also appeared on the show. “You’re like the frog in the frying pan. The temperature has been turned up very slowly on you,” he said, arguing Australia won’t be immune from the hubris that afflicted regulators in Spain and Ireland before their housing markets collapsed spectacularly after the 2008 financial crisis. He makes good points.

Australia does have a housing “obsession”; regulators should be worried about the household debt pile-up.

Property has been a great winning bet for decades, absorbing a torrent of “dumb money”, there purely out of habit and belief. The Reserve Bank has said that up to a third of mortgage holders would struggle to meet repayments if interest rates jumped.

But we shouldn’t rule out a soft landing. Sydney and Melbourne house prices may start to track sideways as wages catch up. And loan growth might slow rather than collapse.

It is bizarre, though, how reluctant our regulators appear to be to take insurance by jacking up banks’ minimum equity levels significantly. The cost to returns on equity and bankers’ bonuses will be well worth it in the long run.

Doomsayers should chill out a bit; economics will do their job for them. They should recall what Herb Stein, economic adviser to US presidents Nixon and Ford, once said: “If something cannot go on forever, it will stop.” The great escape.