Analysis | Australia's housing bubble is at risk from Chinese crash
The nation needs to work much harder to diversify growth engines that seem to become more China-centric with each passing year
Lindsay David's new book on Australia deserves a medical disclaimer: reading this will greatly raise your blood pressure.
In Australia: Boom to Bust David sounds the alarm about an Australian housing bubble he argues makes the 12th-biggest economy a giant Lehman Brothers. His thesis can be boiled down to the number 9 - the ratio of home prices to income in Sydney. This compares unfavourably to 7.3 in London, 6.2 in New York and 4.4 in Tokyo (Melbourne is 8.4).
Housing is one of the three pillars of the Australian economy, along with financial institutions and natural resources. Politicians and investors alike, David writes, do not get "how deeply intertwined and connected" these sectors are and "how they can easily take each other down in a domino effect". The most obvious trigger would be a Chinese crash that simultaneously hits bankers, miners and households hard.
When I asked Treasurer Joe Hockey in Sydney last week whether Australia faced a huge property bubble, he dismissed the entire premise out of hand.
"It is just an easy mantra for international commentators and for analysts based overseas to say 'Well, there's a bit of a housing bubble emerging in Australia'," Hockey retorted. "That is a rather lazy analysis because fundamentally we don't have enough supply to meet demand."
Chinese demand is partly responsible for price spikes in Sydney and Melbourne
Two hours later, Australia's central bank raised concerns about "speculative demand" that "could amplify the property price cycle and increase the potential for property prices to fall later". If not exactly Australia's version of the "irrational exuberance" warning that will forever colour the legacy of former Federal Reserve chairman Alan Greenspan, that is still pretty strong language from a Group of 20 central bank.