Anthony Albanese, the prime minister of Australia, faces re-election in May. It feels like only yesterday that the country ended nine years of Liberal rule in favour of Labour. The country’s short three-year terms are meant to give voters a regular opportunity to pass judgment on their politicians. It also means governments have less time to get things done.
But even amid the rush of high office, every politician needs their breaks. Albanese clearly had this in mind when he recently purchased a holiday home on the coast of New South Wales, an hour north of Sydney. Given that Sydney has the country’s most expensive house prices, it’s no surprise that the getaway mansion comes with a hefty price tag of AUD $4.3 million (€2.65 million).
We’d all be suspicious if an Irish politician paid so much for a property. “Where did he get the money for that?” “Who does he think he is, Charlie Haughey?” But in Australia’s red-hot property market, such a purchase is in line with what others on his salary pay. The Demographia International Housing Affordability survey found Sydney house prices are 13.8 times the median household income. Among the 94 metro areas in the report, only Hong Kong has more unaffordable housing.
The thing about Australia is that it never had a property crash like Ireland did. It had a bubble, sure, but while Ireland’s popped, Australia’s kept on growing. The period after 2008 saw a global recession but a steady recovery as China’s appetite for raw materials remained insatiable. It left Australia with continuous growth. No recession, no property crash.
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Many Irish owe thanks to Australia for these circumstances. While Irish unemployment peaked at 15 per cent in 2011, it was closer to 5 per cent down under. The many Irish workers let go from our boomtime construction sites found their livelihoods sustained by Australia’s fortunes. They also found warmer weather.
The late 2010s recovery in the Irish economy led to an easing of numbers leaving for Australia, but its attractiveness has seen something of a post-Covid revival. Boosted by a better exchange rate, and pandemic-induced wanderlust, a new wave of young Irish are emigrating to Australia in the highest numbers for years.
In the areas where rents are similar to home, many Irish report more space and higher-quality properties. There is a tendency to compare the worst of rents in Ireland with the best of Australia. It’s part psychological. Comparing Dublin with Perth is attractive because both have between one and two million inhabitants, but it’s comparing the largest city in Ireland with the fourth largest in Australia. If we compared in reverse (Galway to Sydney), the rent appeal vanishes. Comparing like for like doesn’t reveal the same stark difference.
But us economists shouldn’t get too bogged down in details, especially as young mid-twentysomethings continue to head off.
Australia isn’t unattractive today; it very clearly is, but there could be clouds ahead.
Predictions for Ireland’s crash came a decade before it happened. Buying an Irish home in 1999 wasn’t foolish. It was foolish not to. The curious thing about Australia is that just when you think the boom is over, it keeps on going
Rents have seen double-digit growth in recent years and, ironically, a surge in inward migration (Irish included) is partly responsible. Stories are emerging of falling rent quality and long queues to view a limited number of rentals. While the housing market feels very “Dublin 2007″, the rental market appears very “Dublin 2017″.
The question for the young Irish in Australia is whether they want to make Australia their forever home. Most don’t but some consider it. If you’ve found love there, or a great community you just never had at home, nothing in this article should change your mind. Ultimately, do what suits your personal circumstances. But be aware that the extortionate levels of property prices there are bound to face a correction sometime. It’s crucial to remember what this meant for the generation that bought their first Irish home during the 2000s. They were stuck. Negative equity meant many had to ride out the 2010s in the same properties. The only rational decision was to stay put until prices recovered to their old levels. Otherwise, you sold at a loss and still owed money to the bank.
When could this correction emerge? The honest answer is no one knows. Predictions for Ireland’s crash came a decade before it happened. Buying an Irish home in 1999 wasn’t foolish. It was foolish not to. The curious thing about Australia is that just when you think the boom is over, it keeps on going.
Australia’s bubble stays inflated by a policy known as “negative gearing”. Landlords of rental properties incur costs such as mortgage interest and repairs. If these exceed the rental income from the property, the difference can be used to lower the landlord’s income tax bill.
Where higher interest rates usually weigh on property prices, in Australia it encourages growth. Landlords have an incentive to take on more debt and another investment property. Who cares when you know that everyone else is doing the same thing, and prices must go higher from here? It all sounds so familiar.
The difference to Ireland 1999 is that there’s unlikely to be upside ahead in Australian property. The OECD reports that Irish household debt was less than 100 per cent of net disposable income in 1999. If you devoted one whole year of your net disposable income to paying off your debts, you’d pay them all off. By 2009 that had doubled to more than 200 per cent. Australia is already at those high levels today.
You have to ask if taking on such high debt repayments is worth it. Even if property prices don’t fall there, there’s no joy being a slave to debt. Ireland learned a hard lesson on that front, and we now have rules to cap mortgage borrowing. Lending to landlords has almost been regulated out of existence.
The Demographia survey includes Dublin among its 94 metro areas. Despite the real challenges in Irish housing, we’ve managed the position of the seventh most affordable market (with prices 4.8 times median household incomes). I use the phrase “boomerang emigration” to describe the emigration of young Irish to Australia. With property prices so high there, most still conclude that it’s better to come home again.
David W Higgins is an economist and co-host of the Next Round podcast. A version of this first appeared on his Substack
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