Australian property and the risk beneath the cycle

A chart comparing long-run real house prices in Australian cities with US property history made me pause. The US property boom that ended around 2006 was followed by a severe financial crisis, yet its rise can look relatively modest beside the longer appreciation of Australian housing in that comparison.

That observation does not prove Australian property must crash. It does not tell us that prices have finished rising. Different markets, lending systems and periods cannot be reduced to a single chart. It does, however, prompt a useful question: are we being adequately compensated for the risks of buying more investment property at today’s prices?

A downturn can affect credit availability, employment and the ability to hold an asset through a difficult period. An investment property may remain a good property in a good location while its owner’s cashflow or borrowing capacity changes.

Property is also large, often leveraged and relatively illiquid. An investor can usually reduce exposure to listed equities much more quickly than they can sell a property. That difference matters most when plans need to change unexpectedly.

The cycle research I follow informs my caution, but no framework removes uncertainty. Rather than claim to know the date or size of a downturn, I want to test whether a prospective return justifies the valuation, leverage, credit and liquidity risks over the years ahead.

At present, my view is cautious on increasing client exposure to investment property. Someone making that decision should consider their wider assets, debts, income resilience and need for flexibility—not rely on a headline forecast in either direction.