So I'm from Perth. Well, technically I largely grew up in mining towns but basically I'm from Perth. I've now lived in NYC for 7 years. I've also lived in the London, Zurich and Germany (Cologne).

Perth had a lot going for it 20 years ago. The standard of living was incredibly affordable. The weather was nice. It was a dull place but well-suited to outdoor activities and raising a family.

In the early 2000s the resources boom happened, fueled by China's insatiable appetite. In the space of 5 years, a 1970s brick home <5km from the CBD went from <A$100k to A$400k. One of my biggest regrets was walking away from buying a house in 2002 that overlooked the ocean for A$430k that 4 years later would've been worth probably A$1.5-1.8m.

Now at the time the same headlines reigned. Prices are going to crash. But in hindsight there were four important factors:

1. Housing was previously too cheap and there was a correction;

2. The resources boom created a massive backlog of construction projects that choked supply for building in the housing market meaning building a house took longer and was more expensive. In the 90s you'd have TV ads for house and land packages for A$100k that would take 3-6 months to build. In a short space of time building a house took 12-18 months and cost $300k+ plus land.

3. The resource boom brought an influx of skilled migrants that increased demand.

4. Those in mining and construction got paid a whole lot more which means they could spend a whole lot more and there's only so much inventory of desirable property (near the city or on the coast or river). Trading up to those properties created a windfall from current owners which they then spent and so on.

So the GFC came in 2007. Australia didn't have the subprime problem that the US did. More importantly though, in 2008 China stopped buying as many resources. Again the predictions of doom came. Momentum probably drove the market still up (in parts anyway) for another 2-3 years. Since then it's either gone down (<10% mostly) or stagnated. In the last few years this has caught up with rents and properties that once might have 50 applicants for $500/week now couldn't be filled at $350/week.

This seems to be the Australian norm for property cycles. It happened in Sydney in the 1970s. Sydney became really expensive but probably stagnated until the mid 1990s at least.

While this was all going on in Perth and Brisbane (Western Australia and Queensland are the two big resource states), Sydney and Melbourne were going nowhere.

What changed around 2010-2011 is the same thing that happened in many other places around the world: money came into real estate in the large cities. Particularly foreign money. Particularly Chinese money.

Some will argue low interest rates were driving this but they're wrong. Properties above $3-5m in NYC for example aren't bought by people with a mortgage. They're bought with cash.

It seems like certain people in China built up a large amount of wealth in the 2000s and the government placed restrictions on how that capital could leave. I believe that certain investments including real estate were one such exception. Wealthy Chinese wanted to get money beyond Beijing's control. They also wanted to have an "out" by buying residency/citizenship in other countries.

So in the last 7 years median prices in Sydney went from (IIRC) ~A$680k to A$1.1m. Bear in mind that this is even with large swathes of suburban wastelands in Sydney's West ostensibly bringing the median down. The effect on the harbour, the ocean and in Sydney's inner suburbs and North Shore is even more pronounced.

All the while software engineers might still be getting paid the same A$150k + bonus they could get 10-15 years ago.

High property prices really are a disease. It makes rent more expensive. It makes everything you buy more expensive since something has to cover the cost of the premises those goods and services come from.

I believe Switzerland has a far better policy approach to this than many other countries I've seen. The intent seems to be that it is an undesirable outcome to have foreign money come in and buy up the country, basically. Likewise, they don't want a rampant speculative market so short term capital gains on property are taxed punitively. It may have changed but when I was there this meant 100% of gains if sold within 2 years and this eventually scaled down over the next 8 years.

People need somewhere to live. Even if they don't buy, prices drive rent. Only luxury buildings get built in NYC now because it doesn't cost much more than "affordable" buildings but it's a whole lot more profitable. That needs to change. The world's cities can't just be used for money laundering and a holding asset for the ultra-wealthy across the world.

So as for Sydney and Melbourne I don't think the prices are going to come crashing down. They may stagnate for years and even dip. But the Australian banking industry is pretty well-regulated (by comparison to the US anyway) and for those at the high end of the market, they've paid cash anyway so who cares what they do or lose? What I mean is dropping prices won't force them to sell.