Irish Observation from Sydney

By February 22, 2019 Blog

Following our most recent analysis on the mounting risks of an Australian property blowout Blog we received this email from an Irish IT Director who has been living in Australia 25 years and well placed to comment. We obtained consent from the writer to reproduce his email and here is what he had to say;

Dear Eddie

I follow Adams and North quoted in your article and they are saying what others don’t want to say here. The advantage of having lived in Sydney for 25 years is that I have a benchmark for behaviour.

Over the past 25 years, the equivalent of the entire population of Dublin City and County has moved to Sydney.

We also skimmed off the top of the global financial crisis thanks mainly to China. And as you well know, while other countries around the world were nursing their debt hangover, we were partying hard into the night.

What I see more and more every day:

  • Anger – serious anger from motorists, from shoppers, from people trying to find a parking space at the beach – People are stressed off their heads and this is even in the affluent suburbs of the Lower North Shore and Northern Beaches of Sydney. They are stretched like Vegemite across toast.
  • Nervous Denial – Even though we have now had 13 months of falling house prices (and the pace is picking up) along with falling new car sales, plummeting building approvals and slowing credit growth, people are in total denial. I heard an economist once say, “talking about a housing crash in Australia is like slaughtering a cow on the streets of Delhi”.
  • People don’t know where to turn – For two decades housing was the only game in town. Everyone who could purchase their house and then one, two or three investment properties did so. Then the rules around Self- Managed Super Funds (Pensions) changed and allowed people to borrow for property. Then when there was no property left to buy, they purchased bank shares which, (as you know), have up to 60% of their balance sheet in mortgages. Property has literally sucked every ounce of capital and innovation out of other sectors.

Eddie Comments

The potential for a classic doom loop is clear; accelerating falls in house values, destabilise banks and feed into deflation in what is a service-led economy. It is what happened in Ireland. That Australia is heavily reliant on its mining output and to China in particular at a time of mounting tensions between Beijing and Canberra doesn’t help https://www.theguardian.com/business/2019/feb/21/chinese-port-bans-imports-of-australian-coal-sending-dollar-tumbling.

But what’s interesting about this email is the personal observation of common stress, the type of thing evident in Ireland when it was at full tilt. It chimes with the research published on Area Code 2570 which is 28 miles to the Southwest of Sydney where stresses are evident in Police reports. This email is anecdotal observation by the writer but it chimes with the research into Area Code 2570 which is grounded in hard data.

It doesn’t yet mean that Australia is goosed but it does mean that the risk of a collapse is dialling up.

Eddie Hobbs

February 2019