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For the last two decades, the Australian and Canadian economies have been afflicted by a similar housing bubble, but there have been recent signs in Canada that the party is coming to an end.

The average house price in Canada in 2004 was $C241,000; in 2022 it peaked at $C836,000, a more than three-fold increase. By the middle of last year it had eased to $C719,000 and has since fallen to $C689,000. That represents a 17.5 per cent fall from its 2022 peak.

Canadian property prices have fallen by $C150,000 over three years while in the same period Australia’s rose by about $A85,000.

The Canadian fall is being attributed to Canada’s central bank increasing interest rates and the Government banning foreign buyers and curbing immigration.

What gets little attention is the supply of debt, banks’ willingness to lend. In both countries, decades of reckless bank lending has led to property bubbles, a type of “financialisation” whereby a nation creates economic growth out of increasing debt rather than productive activity. Canada’s household debt is approaching 130 per cent of gross domestic product (GDP); Australia’s is about 110 per cent of GDP.

Cautious

Canadian banks are finally starting to show signs of caution. The Bank of Canada, in its 2025 Financial Stability Report, warned that strain on household budgets and the prospect of a tariff war with the United States suggest the need to pull back. Canada’s biggest banks are tightening their lending standards and making allowances for credit losses on potentially non-performing loans.

The Canadian news site for mortgage professionals, CMP magazine, notes that the bigger Canadian banks “are continuing to stash away rainy-day funds amid a darkening economic environment, with rising loan-loss provisions unsurprisingly a huge factor in each of the Big Six’s second-quarter earnings announcements”.

That is not happening in Australia, which is not as exposed to the Trump Administration’s tariff moves. But it does underline an important point rarely considered as a cause of Australia’s property boom. The only thing that will lead to a return to reality is the banks’ changing their lending policies – because it was the banks’ policies that created the bubble in the first place.

The Reserve Bank of Australia has expressed concern about the impact of U.S. protectionism on the Australian economy but, unlike Canada’s central bank, has said comparatively little about Australia’s crippling household debt. Instead, the focus is on balancing the need to control consumer-price inflation – while showing no interest in asset-price inflation – and trying to manage interest rates to keep the lending going.

The consequence is almost complete silence about the biggest issue facing the Australian economy: the behaviour of the banks.

Usury

Meanwhile, appreciation is growing of just how devastating the issue has become. Australian society is mired in usury. According to the most recent Demographia International Housing Affordability Study, Sydney, Melbourne, Adelaide and Brisbane are ranked as “impossibly unaffordable”.

Two economists – Peter Siminski from the University of Technology Sydney and Roger Wilkins from Melbourne University – have argued that there should be a tax on the family home. They posit that owner-occupiers should be taxed on “imputed rent” – the value of living in your own house without paying rent – plus capital gains made when the home’s notional value rises.

It is hard to imagine a more politically suicidal policy, but the fact that it is being proposed points to how extreme the problems are.

A more sensible target would be property investors. According to the ABC in 2022-23, profits from investor-owned rentals fell 73 per cent, pushing many rental properties into the red. Yet, despite the drop, investor numbers, and the number of rentals owned, shrank by less than 1 per cent.

Australia’s taxpayers are protecting speculators, which feeds the price excesses. The cost is projected to be $7.5 billion this financial year.

If interest rate changes are not effective in controlling prices, then what will be?

The Canadian experience suggests that changes to bank lending are the only effective avenue. It will not be initiated by the Australian Government, though, because the nation “deregulated” its financial system in 1982, effectively giving up managing the banking system. Australia’s politicians have become spectators, although there is always the possibility that they may show courage.

One also has to ask, how many politicians use negative gearing to own investment properties and prosper from the soaring house prices?

Given that anyone under 40 is facing punishing costs to buy a house, and Baby Boomers are dying off, the potential political gains are exceptional. But the barriers are extreme.

Former federal senator Sam Dastyari bravely claimed, there is “unprecedented concentration of corporate influence” in Australian politics, with ten companies dominating. Dastyari included in that number the big four banks.

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Republished with thanks to News Weekly. Image courtesy of Adobe.