House prices across the nation dropped 4.8% in 2018. Compared with their 2017 peak, Sydney prices have dropped 11.1%, while Melbourne prices have dipped 7.2%. There is widespread worry that the slide could continue and drag the rest of the economy into recession.
Deutsche Bank has actually ranked an Australian housing crash one of the top 30 risks to the world economy alongside issues like the US-China trade war, Brexit and the US government shutdown.
While some commentators say that a drop in prices will be soft, and is a natural consequence of an overinflated bubble in the sector, others worry that the landing could be hard with the potential to throw tens of thousands of mortgage holders into negative equity (owing more than what your property is worth). An increase in mortgage defaults would drag the banks into a deep crisis.
With lending standards already being tightened, there is a worry that an increase in mortgage defaults could push the banks towards a lending freeze. With interest rates already low at 1.5%, and household debt levels very high, there is limited scope for authorities to entice people to borrow more – a means of driving growth and reinvigorating the sector.
The drop in house prices, coupled with low wage growth and increased cost of living pressures, has already forced people to cut their spending. This is beginning to affect the retail sector and could go much further.
While a number of significant building projects are still going ahead in the major cities, a housing crash would trigger a collapse in the construction sector, putting thousands of jobs at risk. This is something that the construction unions need to prepare for, and campaign against.
Ultimately, overinflated house prices, and the major problems that would come with a crash, are a consequence of a sector that is dominated by the capitalist market. We need to fight for the construction, financing and provision of housing to be brought under public ownership and control. That way putting a roof over your head can begin to be seen as a right rather than a luxury.
By Socialist Party reporters