Lots of media chatter about house prices falls becoming entrenched last 2 weeks. They were precipitated by Labor’s budget. MB and many of us have been arguing for these things for years:
- ending negative gearing
- bringing real estate into anti money laundering regime
- ending SMSF residential property lending
I think they acted for ideological reasons, to bring down house prices while keeping up migration levels.
Doing this a few years ago when we all wanted it eg during COVID would have been fine, but their timing now is bad.
Socialist policies across the west have led to great inflation and debt essentially to fund lifestyles and ideology and not to build productive capacity. That is almost a textbook definition of what being anti-capitalist means. Capitalism is investing profits to improve production. If you’re not improving production you’re going to destroy it in a free market because competitors will do what you don’t.
Australian food production is in decline and has been for a while:
- The Netherlands earns more from agricultural exports than Australia
- Commentary on Matt Canavan’s recent comments on agricultural productivity noted:
- “The Australian reported that the Australian Bureau of Statistics and the Australian Bureau of Agricultural and Resource Economics and Sciences have projected shortfalls in production of basic Australian foodstuffs”
- It’s been several years since SPC Ardmona was complaining that it was having a hard time, not sure if they still are. Maybe they got a gov subsidy. Heinz moved its food processing to NZ some years ago.
This is partly a result of the special agricultural worker visas which have disincentivised farmers from becoming more productive. When they can’t get the workers they do things like spend $20m on robots: https://www.abc.net.au/news/2026-08-23/avocado-packing-shed-manjimup-robotic-upgrade/107059672
As global bond yields keep rising, governments in debt will have to make hard choices. Bank interest rates will follow bond rates. More of the budget is going to be taken up with interest payments. Govs can either print money or cut spending. Australia is not ready to become a latin american delinquent so spending is going to be cut. That will at least keep a lid on demand pressure, but given so much of recent employment growth has been in gov jobs, that will mean more unemployment.
Ongoing high oil prices are going to feed inflation and thence interest rates too…but this is about more than just expensive fuel. Snowy Hydro, Melbourne infrastructure (SRL) and more are money pits and inflation contributors.
Australia’s productivity growth has been falling for years and may even be negative now. That’s going to matter now that the cracks can’t be papered over by growing debt. It’s the inevitable consequence of not investing in improving your production processes. Dumber people in larger numbers are a part of that. Immigration will have to be cut.
Labor’s changes plus rising rates mean property is falling, and the falls are gathering pace. We haven’t even seen unemployment rise yet.
The trouble is that so much of the economy revolves around real estate. People have been putting their money into real estate rather than starting or growing businesses: https://www.zerohedge.com/personal-finance/wealth-exodus-australians-flock-property-investment-over-business . It was mad not to. But those days are over and now the skills required to start and run profitable enterprises simply aren’t there in high enough numbers many parts of the country. Work quality is suffering. https://www.abc.net.au/news/2026-08-18/sydney-airport-collision-chances-safety-issues/107035398….think of DLS’s experience with VIC mental health system…or this: https://www.abc.net.au/news/2026-02-27/perth-mother-blames-systemic-failures-for-her-daughter-death/106396758
Lots of people are renting https://www.abc.net.au/news/2026-08-27/more-children-are-growing-up-in-rental-housing/107082682….and therefore insecurely housed. Australia is now a pretty unhappy place https://www.visualcapitalist.com/ranked-income-needed-to-be-happy-by-country/ because it costs so much for basic needs. Unhappy people vote against the status quo.
The role of AI in all this is important. Firstly, the AI build out is hugely expensive and may continue to be so as the software-hardware development loop cycles. Tech corps (so I’ve read) are funding through debt and not free cashflow and equity floats. The numbers are too big. This debt is competing with gov bonds and contributing to rising gov bond yields. Second, harnessing LLMs and other AIs is the obvious route to the next productivity boom.
The ending of Australia’s long running real estate boom is going to be bumpy, but we are a desirable place to build data centres because of space and distance…redundancy matters. There are lots of issues with data centres, but at least their construction and maintenance is generating some local upskilling and ongoing revenue. That skill base is something that can be built on, perhaps dramatically so if investing in productive capacity is more profitable than betting on government backing of the housing market. It will be tough for many as the economy is weaned off real estate debt, but it can come out swinging.
- My 1-2 year long positioning is energy, gold, BTC, industrial metals, agriculture, tech.
- Shorting local banks might work too. I note CBA , WBC and NAB are red on tradingview all the way out to the 1 year mark. ANZ to 6 month.
Volatility is mad so either strap in or swing trade.