How Deregulation, Dual Incomes, and Monetary Policy Redefined Australian Housing

In a previous analysis, we showed that house prices rose primarily because of credit expansion, not supply scarcity. Wages doubled over 30 years, borrowing capacity tripled, and prices went up 6x. A lot of people agreed with the data but asked: "OK, so what does this mean for the future, and what would fix it?"

This is the longer answer. It covers how bank deregulation in the 1980s expanded credit access, how the banking system absorbed dual incomes into lending assessments, and why house prices measured against the money supply haven't really grown at all.

Before the 1980s, getting a mortgage in Australia worked nothing like it does now. You didn't walk into a bank and ask how much you could borrow. You had to prove you could save first.

Banks wanted to see a consistent savings record, usually 12 to 24 months of regular deposits into an account held with that same bank. The branch manager reviewed your application personally, and the relationship mattered. Credit was rationed. Banks could only lend from the deposits they held, and the government forced them to park up to 70% of those deposits in government securities through "prescribed assets ratios." What was left for mortgages was a small pool, and it ran out regularly.

Median prices sat around $32,000 against average earnings of $8,000, and a typical household faced a strict $25,000 loan limit. The deposit gap was roughly equal to a full year's total salary. Restrictive? Yes. But it also meant house prices couldn't outrun wages by much. There just wasn't enough credit in the system to push them higher.

Then the rules changed. The 1981 Campbell Report recommended dismantling most financial regulations. The Hawke-Keating government ran with it: floated the dollar in 1983, removed interest rate ceilings, and from 1985 onwards granted licences to sixteen foreign banks. The 1984 Martin Review pushed things further.

Under the old system, banks rationed a fixed pool of deposits across borrowers. After deregulation, they competed for deposits, tapped wholesale funding markets, securitised loans, and grew their books as fast as they could find borrowers. The question went from "how much money do we have to lend?" to "how many borrowers can we find?"

Non-bank lenders in the 1990s took it further. Aussie Home Loans and RAMS didn't take deposits at all. They funded mortgages by packaging them into securities and selling them to investors. The total pool of mortgage credit was no longer tied to bank deposits. It was tied to how many loans could be packaged and sold, which in practice meant no real limit.

The household debt numbers tell the story. In 1980, total household debt was about 40% of household income. By 2006 it hit 160%. Today it's around 190%.

After the 1966 repeal of the "Marriage Bar" (which had prevented married women from working in the public service) and the Equal Pay cases of the early 1970s, women entered the workforce by choice. Households had more money.

Then the banks noticed. By the late 1980s, they were factoring dual incomes into borrowing assessments. Property prices adjusted upward to absorb the new maximum bids. The second income stopped being a bonus and became a prerequisite for market entry.

Mortgage repayments now eat 92% of the median monthly salary. In the 1970s it was 44%. Single-income earners qualify for loans 42% smaller than dual-income pairs with the same combined earnings. If you're buying alone, you're basically locked out.

To be clear: women entering the workforce was obviously a positive development. The point is narrower. The banking system factored the second income into loan assessments, which increased maximum loan sizes, which translated into higher auction bids, which set a new price baseline. A significant portion of that additional income ended up being absorbed by the property market rather than staying with households.

The clearest evidence is that 92% debt-servicing figure. If dual incomes had genuinely made households richer in a lasting way, you'd expect the share of income going to housing costs to stay flat or fall. Instead it nearly doubled. The second income didn't make housing more affordable because the market simply absorbed it.

To understand price appreciation, you need to separate the numerator (the physical dwelling) from the denominator (the Australian dollar). When the denominator loses value, the numerator appears more expensive.

The clearest way to see this is to measure house prices against the money supply itself. The RBA publishes broad money data monthly in Monetary Aggregates Table D3. Since 1995, the median Sydney house has gone from roughly $200k to $1.4M, an increase of about 600%. Over the same period, Australia's broad money supply went from $394 billion to $3.4 trillion, an increase of about 760%. The "growth" of house prices is mostly the dollar losing value.

Measure	Average annual growth	Focus
Official inflation (CPI)	2-3%	Consumer goods (bread, milk, electronics)
Monetary expansion (broad money)	~8-9%	Total money supply and credit expansion

CPI measures things bought with income. It doesn't capture the expansion of the money supply used to buy assets with credit. That's why CPI shows 2-3% annual inflation while broad money grows at 8-9%. The gap between them flows into asset prices.

This shows up at the suburb level too. Across 35 years of NSW sales data, even suburbs people think of as strong performers are growing slower than the money supply. Mosman houses have averaged 4.1% per year over 20 years. Bondi is 5.5%. Manly is 4.9%. Broad money has grown about 8% per year over the same period. The price growth most people see is their house roughly keeping pace with monetary expansion, or falling behind it. This dynamic is accelerating into a K-shaped divergence between inner and outer suburbs.

Compare growth rates across suburbs → See 10-year, 20-year, and all-time growth rates for any NSW suburb, with cycle position and trend deviation.

Community discussion around this analysis raised several important perspectives:

France caps borrowing at 3x household income. Commenters pointed out that France limits mortgage lending to three times household income, with fixed interest rates for the life of the loan. One swift regulatory move, and it fundamentally changes the relationship between income and house prices.

Securitisation was a turning point. The introduction of mortgage-backed securitisation in the 1990s meant banks could offload debt off-balance sheet. This new funding vehicle also introduced non-bank lenders who could borrow in financial markets, increasing competition and making lending easier. It fundamentally changed the market forever.

Credit expansion overwhelms supply. Economist Richard Werner's work was referenced, demonstrating that it's not just low rates but where bank credit goes that matters. When most new credit flows into existing housing, you get asset price inflation without wages or CPI moving much. Australia did the opposite of Germany: deregulated banking, privatised public banks, and massively expanded borrowing capacity, so falling rates mostly turned into mortgage credit rather than business investment.

Equity-based lending was the accelerant. From the mid-1990s, banks started targeting homeowners to borrow against the equity in their homes, especially for investment properties. Negative gearing already existed, but easier credit based on accessing equity from your primary residence was the massive accelerant for the "mum and dad investor" market. This is the mechanism behind the 6x price increase we documented earlier.

How sensitive is your suburb to rate changes? → Our free rate impact calculator shows how different RBA rate scenarios affect suburb-level prices.