The Australian government ran conservative fiscal policies during the commodity boom, resulting in a government debt level among the lowest in the industrialized world. More recently, the commodity exporter largely escaped the jaws of the Great Contraction. But now, after one of the longest economic booms in the developed world – virtually “recessionless” for nearly two decades – households appear to have caught a nasty case of what BCA Research calls, “Anglo-Saxon Disease.” Household debt levels in Australia has surged past both the US and the UK, reaching more than 110% of GDP, as consumers have continued to spend right through the crisis.
While local media often maintains that Australia simply dodged the bullet, we are not quite sure. Any significant reduction in commodity demand could easily provide Australia’s property bubble with a Chinese Pin. We are already beginning to see monthly declines in Chinese home prices, as Tightening Property Policies Continue. Then again, bubbles of this magnitude often collapse under their own weight as gravity pulls valuations back to earth over time.
The most recent edition of The Broyhill Letter, which details the risks of an overheating Australian property market, was recently published at Forbes in two separate installments here and here. The full letter can also be downloaded directly below.