Bubble mania has reached fever pitch in financial markets worldwide. From the cryptocurrency sector to Wall Street, warnings of impending doom are rife. The Australian Prudential Regulation Authority (APRA) is now focusing on a domestic concern: the Australian property market, which has been inflating steadily for nearly three decades.
The Australian housing market has become a focal point for regulators due to its potential impact on the financial system. The market’s growth has been fueled by generous tax concessions, significant population increases, and a banking system heavily invested in real estate. As a result, housing prices have soared, making affordability a pressing issue.
The Real Estate Bubble: A Closer Look
Australia’s real estate market, valued at over $11.6 trillion, is underpinned by nearly $2.6 trillion in debt. This debt is the largest component of the lending portfolios of the country’s major banks, posing a significant risk should the market unravel. According to APRA and the Reserve Bank of Australia, the country’s household debt to GDP ratio is among the highest globally, with median house prices exceeding eight times the median income.
Eliza Owen, head of research at Cotality, notes, “Australian home values have climbed roughly 47.3 per cent since March 2020, an extraordinary rise that added about $280,000 to the median dwelling value.”
This surge was driven by pandemic-era monetary stimulus and record-low interest rates, which increased borrowing capacity and demand, even as housing supply lagged.
Regulatory Measures and Market Impacts
APRA has previously implemented macroprudential controls to curb the property market’s growth. In 2014 and again in
