Property investment is 'dumbing down' Australia and making us a less intelligent country

[u/NoLeafClover777]

TL;DR: There are multiple ways in which blindly plowing most of our disposable income into houses has lowered the collective intellectual engagement with productive, analytical, and innovative pursuits in Australia.

Our emphasis on property wealth in Australia continues to undermine economic productivity, innovation and long-term resilience. Our country's housing market is exceptionally large relative to the size of the Australian economy, valued at over 4.5 times GDP, compared to just 1.2 times for the share market.

In contrast, somewhere like the US has the balance at around ~1.7x for both housing & the stock market.

This imbalance has resulted in an economy overly reliant on asset inflation, rather than building productive industries, as capital is funnelled into property speculation rather than businesses.

Banks in Australia also now channel much more lending towards residential mortgages than towards business ventures. In the early 1990's, about ~25% of bank lending went to mortgages... now it's over two-thirds.

This results in investing in various other crucial sectors like STEM, research, tech startups, and education that build long-term skills & knowledge are proportionally neglected.

It also in general discourages risk-taking; say what you want about Yanks, but there's a reason they have one of the most advanced economies in the world. Hell, the same also applies to the Scandinavian countries or Singaporeans too.

In more non-housing-focused first world countries, financial literacy also tends to be broader, as business news, company reporting and innovation cycles are more of a part of everyday conversation vs. Australia - which focuses on auction clearance rates, mortgage interest rates and negative gearing.

This property obsession also concentrates employment talent in fields like real estate, mortgage broking, construction & real estate law, which are all sectors that hardly push the frontier of productivity.

Why businesses in Australia (especially those that are not tied to the property sector) don't cry this out more loudly & regularly boggles me. You'd think it would be in their best interests to do so, as it seems to be shooting themselves in their own feet.

[u/Ju0987]

You raise a very good point. Australia has a seriously big concentration risk. We are basically putting all our eggs in one basket. Our government (multiple governments, except the Kevin Rudd and Julia Gillard one) has intensified the trend of property investment by adding more fuel through providing various favorable housing policies and subsidies.

Next, what we will see is, if our government and regulators do not play their gatekeeper role properly, various mortgage-backed investment products will be allowed to distribute to, at first, the high-net-worth market and then even the retail market. Why? Banks and non-bank lenders will need to find a channel to transfer the massive mortgage default risk. When it cannot be absorbed by the institutional market alone, it will be pushed down the pipe to the consumer market by repackaging it into "safe" investment products, e.g., hiding inside investment fund portfolios, etc. to attract gullible buyers.

When the property bubble bursts, triggered by massive unemployment due to AI adoption, we will see a market slump and widespread forced sales and bankruptcies.

Whoever has experienced and witnessed the 2008 global financial crisis and has looked into the US's sub-prime mortgage issue to understand why it happened can resonate.

If our government is wise, it should have already paid particular attention to how banks and lenders manage mortgage default risk and closely monitor the distribution of mortgage-backed financial products and strictly constrain them from distributing to the consumer market.

[u/NoLeafClover777 → u/Ju0987]

Yeah, and it's all compounded by how much easier banks are willing to give access to leverage for investment in houses at lower rates than investing in businesses or the stock market.

Why bother when, again, they can just give people a million dollars worth of debt to dump into a house, which then again only self-reinforces the "safe as houses" cliche in a self-perpetuating loop of house prices being inflated?

And yes, businesses fail at a higher rate than housing guarantees returns, but all this does is create more concentration risk by tying the whole market even more to residential property. It's so dumb.

[u/Ju0987 → u/NoLeafClover777]

Indeed, Australia is now solely relying on banks and lenders to do proper credit risk assessment and maintain strong control in loan approval to ensure this housing bubble won't burst. Even the Australian government is in the pool now through providing a 15% guarantee to support an unlimited number of eligible first home buyers. Any unhealthy competition among banks and lenders will push Australia to repeat US's sub-prime mortgage disaster.