The K-Shape: What the Next Two Decades Might Look Like

In our previous analyses, we covered why credit expansion, not scarcity, drove house prices and how deregulation and monetary policy reshaped the market. A lot of people asked: "OK, so what happens next?"

This piece covers what we think the next two decades might look like, and what other countries do differently.

AI will probably suppress consumer prices by automating white-collar services and reducing labour costs. On the surface that sounds positive, since wages would buy more goods and services.

But lower CPI gives the RBA room to keep interest rates low and continue expanding the money supply. The mechanism is straightforward: the RBA targets 2-3% CPI. If AI pushes consumer prices below that band, the textbook response is to cut rates to bring inflation back toward target. Lower rates mean cheaper credit, more borrowing, and money supply growth.

Central banks have a deep institutional bias against deflation (Japan being the cautionary example), so they tend to err toward easing. The problem is that the new money flows into assets rather than consumer goods, so CPI stays low even as broad money keeps growing. That gives the RBA further justification to keep easing. It becomes a self-reinforcing cycle where technological deflation leads to more monetary expansion, which shows up in asset prices rather than consumer prices.

And AI may simultaneously compress wages in the professional cohorts (legal, financial, analytical) that currently drive mortgage demand. McKinsey's 2023 report on generative AI found that current AI technologies could automate work activities absorbing 60-70% of employees' time, with the greatest impact on knowledge work tied to higher wages and educational requirements. That's precisely the cohort driving Australian mortgage demand.

The result is a K-shaped economy. If you own assets, your wealth grows in nominal terms alongside the money supply. If you depend on wages and don't own assets, your cost of living rises (particularly shelter) while your income stagnates or declines.

The geographic divergence shows up most clearly over the last 10 years in our NSW suburb data.

Inner-ring suburbs where cash buyers and equity-rich purchasers dominate have kept growing:

• Northbridge houses ($5.39M): 7.7% per year over 10 years
• Paddington ($3.65M): 6.7% per year over 10 years
• Concord ($3.3M): 6.4% per year over 10 years
• Marrickville ($2.2M): 6% per year over 10 years

At these price points, buyers are rolling equity from previous properties or buying outright. They don't need wages to keep up.

Compare that to outer suburbs where first home buyers are closer to their maximum borrowing limit:

• Liverpool: 0.5% per year over 10 years. Basically flat for a decade.
• Penrith: 2.2% per year over 10 years
• Wentworthville: 0.1% per year over 10 years
• Mount Druitt: 4.1% per year over 10 years

These suburbs are almost entirely mortgage-dependent. When credit tightens or wages compress, there's nobody else to step in and buy. The cycle charts for these outer suburbs show a very different shape to the inner-ring ones.

See where your suburb sits in the K-shape → Check growth rates, trend deviation, and cycle position for any NSW suburb.

The assumption is that the housing market has one type of buyer: the income-dependent mortgage borrower. Remove that buyer, demand collapses, prices fall. But the market has a spectrum of buyers.

At the bottom are first home buyers using maximum leverage. In the middle are upgraders deploying equity from existing properties. At the top are cash buyers, institutional investors, SMSFs, and intergenerational wealth transfers. AI-driven wage compression primarily removes buyers from the bottom. It doesn't remove the cash buyer, the equity-rich downsizer, or the investor deploying capital that has itself been inflated by the same monetary expansion.

Prices don't collapse because buyers disappear. The type of buyer changes: fewer young people with big mortgages, more cashed-up owners rolling equity or deploying capital. About 28% of Australian property purchases already happen without a mortgage, and that share has been rising.

If you want to see what credit-side reform actually looks like in practice, look at Singapore. They have a 90% homeownership rate. Australia's is about 67% and falling. Singapore's median house price-to-income ratio is 4.2, while Sydney is at 13.8. A city-state with a fraction of Australia's land and one of the highest population densities on earth has housing 3x more affordable than Sydney.

How they do it:

• Escalating stamp duty. First home: zero Additional Buyer's Stamp Duty. Second property: 20% ABSD on top of the purchase price. Third: 30%. Foreigners: 60%. This makes property investment progressively more expensive.
• LTV caps that tighten with each property. First home: up to 75% LTV. Second property: capped at 45% LTV (you need 55% upfront). This forces genuine equity into each purchase.
• Total Debt Servicing Ratio. Total debt repayments can't exceed 55% of gross monthly income. Applies to all loans, not just the mortgage.
• Government-built housing. About 75% of Singapore's population lives in HDB flats built by the government on 99-year leases at subsidised prices. They don't rely on the private market to solve housing supply.

In Australia, the tax system works in the opposite direction. Negative gearing lets investors deduct losses against their salary. The 50% CGT discount rewards holding property as a financial asset. Singapore treats a second property as a luxury and taxes it accordingly. Australia incentivises treating housing as investment rather than shelter.

The RBA's own submission on home ownership acknowledged that Australia's treatment of property investors "is at the more generous end of the range of practice in other industrialised economies."

Explore the data yourself → The free Blacktown demo shows the full cycle chart, street-level analysis, and more. No sign-up required.

Specifically, reform means addressing the credit side:

• Tighter lending standards. Stricter income-to-loan ratios and higher assessment buffers to cap aggregate borrowing capacity.
• Tax reform. Remove or significantly taper negative gearing and CGT discounts that incentivise treating housing as a financial vehicle rather than shelter.
• Broad-based land tax. Increase the carrying cost of unproductive land to encourage efficient use.
• Supply paired with credit restriction. Direct supply increases toward the bottom of the market while restricting the credit that otherwise absorbs new supply into higher nominal prices.

At this point, housing in Australia functions more as a monetary hedge than as shelter. As we showed in our analysis of why prices rose 6x, the house didn't change. The credit chasing it did. Without structural changes, homeownership increasingly becomes something passed down rather than something earned.

The community response to this analysis was the largest of the series, with hundreds of comments raising important perspectives:

The political incentive problem. Many comments highlighted the same structural issue: the people who benefit most from reform (renters, young buyers) have the least political power, while the people who'd lose (existing owners, investors, MPs with property portfolios) control the levers. As one commenter put it: "They're playing the 'we don't want to lose power' game."

New Zealand's approach. NZ was cited as a real-world example of credit limits on investment property (requiring 30% LVR), which has had a meaningful impact. A credit limit doesn't take money off investors, doesn't have the political headlines, doesn't change the rules for existing owners. It just affects the banks and potential future investors.