"in the 1950S and 1960s-70s we still had a hangover of legislation that limited the amount one could borrow for a home"
That is the whole point. Lending practices have been loosened to the point that we have seen a speculative asset class assisted by government legislating negative gearing, halving capital gains tax on investment property, voiding it on homes, and tax breaks by allowing SMSFs to invest. Not to mention the get out of jail free trump card, which was to open investment to overseas speculators.
Essentially property investment has been a ponzi scheme, where 93% of loans are for existing properties, which caused a squeeze on existing stock.
Prices rose by 300% between 1998-2008. This does not exactly fall in line with the 100% mantra of property doubling every 7 to ten years.
The growth of credit and house prices has made people feel rich. People seem caught up in the noveau riche mentality as their house values have increased, which has just enabled them to borrow more for that holiday or TV, through the redraw facility. People have been using their homes as ATMs as they redraw upon their 'asset' which they believe will continue the rising trend.
Question: What happens when prices do fall (for arguments sake, as people have been reporting on this thread) and rates rise. The LVR (that is the amount of equity people have drawn from their home) has just jumped up all of a sudden, which needs to be serviced in an environment of rising rates.
In regards to the two income household, I thought that was more of a response to the womens liberation movement and them wanting to get out of the house. From my understanding this did more to add to the fuelling of prices rather than house prices fuelling them into the work force. Ironically, what this lead to was a growth in the service industry as we were all too busy to attend to the other things in life, such as our kids (day care), and really no better off in that we had an inflated asset class at the cost of free time and rising credit and debt. A false economy if ever.
