The Real Reason Property Prices Exploded (And Why We May Have Hit the Ceiling)
I’ve been digging back into some excellent research from Tim Farrelly—our asset consultant who I really rate for his independent, no-conflict views. A few years ago, he published a brilliant piece breaking down the drivers behind Australia’s soaring property prices. And let me tell you, it’s not what most people think.
For decades, we’ve been fed the line: “Property doubles every 10 years.” And yes, if you looked at a basic three-bedroom home in Sydney over the past decade, the numbers stack up—median capital growth is around 125%. But here’s where it gets interesting…
What Actually Drove the Price Boom?
Let’s compare a few fundamentals:
- Inflation was up around 25%.
- Wages rose about 30%.
- Rents—which, let’s not forget, are the actual income generated from investment properties—were only up 29%.
None of these moved anywhere near the 125% jump in prices. So what did?
The only metric that’s risen in lockstep with property values is the average loan size.
That’s right. The ability (or willingness) of people to borrow more has pushed up property prices—not some magical underlying value, but debt. Pure and simple.
We’ve Hit a Tipping Point
This matters because we’re now at the point where households are, on average, using 50% of their income just to service a mortgage. To put that into perspective, anything over 30% is considered mortgage stress.
So, here’s the crunch: if 29% of Australian mortgage holders are already in mortgage stress—and over half of them are considered to be in extreme mortgage stress—how much more can people really borrow?
This could very well be the ceiling for property prices, at least for now. The room to borrow more (and therefore to pay more) just isn’t there.
Unless wages start catching up or something radically shifts with interest rates or rental yields, there’s not much fuel left in the tank for another major property boom. And that’s not fearmongering—it’s just maths.
The Risk We’re Passing On
As a dad, the idea of one of my kids going into $600,000 or more of debt just to get onto the property ladder gives me chills. Yes, I’m still an advocate for home ownership—but not at any cost.
What I’m focusing on with my own kids is building significant deposits. Help them save, guide them into better habits, and support them in entering the market with less debt. That means more financial breathing room, less risk, and the chance to actually enjoy life—not just scrape by trying to meet a mortgage repayment every month.
Because what’s the point of owning a home if you’ve got no cash flow left to live?
The information provided in this article is general in nature only and does not constitute personal financial advice.
