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This is an article written for our Progress magazine. Grab a free trial subscriber’ship today. Download the Home Buyer’s Strike special edition.

On March 15, Prosper announced to the media that first home buyers were on strike and refusing to commit at current inflated prices. This campaign was created as a warning to naive buyers who may not have understood house prices were most severely unaffordable and headed for a fall.

Information about Australia’s real estate market is seriously manipulated by the agents who make their living from property sales. They seek to create an atmosphere of rosy confidence at all times and in all market conditions. Their ceaseless refrain is: Buy Now! Bid High!

No voices contest the endless boosterism of the estate agents. Until now:

“When The Great Australian Land Bubble bursts – just as land bubbles all around the world have – the freshest buyers are totally exposed. They face financial ruin as house prices fall below their debt. The crippling mortgage repayments become pointless,” Prosper’s press release said.

“We cannot help those who have recently bought, but we can warn prospective buyers – particularly first-timers whose innocence and heavy borrowing leaves them uniquely exposed.

“… there are 1.3 million Australians with negatively geared rental properties. They are diverting all rents and some personal income to meeting interest payment in the hope of capital gains. When only capital losses are expected, investors will flood the market and overwhelm demand. Buyers will step back, making it virtually impossible to sell at any price.

“Do not underestimate the scale and significance of the transformation that is about to unfold. Price falls are imminent – protect yourself. Don’t Buy Now!”

Prosper quickly exploited the opening by creating a Facebook site Don’t Buy Now – Home Buyers’ Strike , which now has 1,900 active users and a staggering 190,000 unique page impressions. Its audience is overwhelmingly males 25-34 (36%) and males 35-44 (24%). Prosper funded and promoted a two minute viral video on the strike which has been viewed 1,250 times and counting.

“..when a couple with two solid incomes and a good deposit cannot get a bank loan for a starter home on the edge of town, the game is already over. The market must turn.

“First home buyers are the ‘Greater Fools’ of the real estate market. Our Buyers’ Strike campaign has made them aware land prices can go down as well as up.
“The looming fall in prices will cause great economic hardship. Consider the US experience, where a quarter of mortgaged homes are ‘underwater’, worth less than the loan they support and pinning homeowners in an impossible situation.

Getup Campaign
The Buyers’ Strike was put up as a campaign suggestion at GetUp, the progressive political campaigning website. The suggestion rose from 111th to first in a mere three weeks with over 7,000 votes from 2600 people. The speed with which this idea soared amazed everyone as it zoomed past issues like republicanism, the environment, same sex marriage and on and on.

The campaign did not sit well with GetUp. Prosper was making a call for direct economic action, clearly outside the political lobbying purpose of GetUp. They removed Buyers’ Strike from their list of campaign suggestions by creating a new category ‘Hot Topics’ so the issue could be quietly dropped.

“Residential properties are trading at between six and nine times earnings – depending on assumptions. Historically, they have fluctuated between two and a half and three times earnings.

Prosper’s Buyers’ Strike was robustly supported by debt-skeptic Steve Keen, Associate Professor of Economics and Finance at University of Western Sydney. His solid work and stern warnings on the unsustainable level of consumer debt are very highly regarded overseas and by academic economists.

“This is an excellent idea which I endorse. It would be a foolish personal decision to take out the size of loan now required to enter the market,” Keen said.

Keen has repeatedly spoken out about the dangerous instability of the Australian housing market, describing it as a ‘Ponzi Scheme’, as defined by Hyman Minsky.

“Though the banks have the most responsibility for driving up house prices by letting their LVRs rise from the responsible 70 per cent levels of the 1960s-1970s to the utterly irresponsible 97 per cent levels of today, the house price bubble has also been inflated by the so-called “First Home Owners Grant” scheme. This scheme, which I prefer to call the First Home Vendors Grant, has been used as a cheap macroeconomic boost by the government on five occasions now –1983, 1989, 2000, 2001 and 2008 – and each time all it has done is push up house prices,” Keen said.

Total Abstainers Pledge
We also posted a Total Abstainers Pledge for first home buyers on the Prosper website:

The current price of land is grossly overvalued compared to take-home earnings.

Compounding this, Australia is in the grip of a housing Ponzi scheme similar to that which brought the northern hemisphere to their knees.

I undertake not to bid at auction or negotiate by private treaty to buy real estate until prices moderate, just as they have in all the countries we compare ourselves to.
I will use this time to save a larger deposit to free myself earlier from mortgage finance and gain my economic independence.

Meanwhile, Prosper pounded the media with fresh insights:
• “Thousands of would-be homebuyers have committed themselves to Prosper’s Buyers’ Strike and are now standing out of the market.
• “Our call for a buyers’ strike has gone viral over the internet – spread far and wide by young disaffected adults locked out of home ownership.
• “Do not underestimate the depth of feeling around this issue. Being locked out of home ownership denies them full citizenship. They are deeply frustrated and very angry.
• “The entire real estate edifice relies on first home buyers overpaying for poor quality property. Sellers can cash out and gear up for a superior home. The process works well until buyers can no longer afford the first step. That is the situation right now.
• The internet-based Buyers’ Strike campaign become a magnet for anonymous trolls trying to deflect the debate from the key issue of housing affordability with abuse and vilification.
• “Their message to first home buyers is simplistic and insulting: Submit! Sacrifice! Conform! They have filled the comments at prosper.org.au and at GetUp with their bile.
• “The spivs and spruikers and trolls of the real estate industry continue to claim Australia is an exception – it cannot happen here. Ask any economist: there are no exceptions; prices always revert to the long term trend.

The Buyers’ Strike led to 32 radio interviews, ten press interviews and a national television appearance. The campaign has been reported by the media in Canada, Malaysia, USA, New Zealand and the United Kingdom.

The Bubble Burst
And then on April 12, Prosper called the bursting of The Great Australian Land Bubble.

The era of towering prices – of superhuman personal sacrifice by every young couple to fund a mortgage to buy a simple home – has just come to an end.”

“Now comes the grand unwinding, where house prices go into free-fall, owners despair, buyers sit on their hands and our banks call in ‘underwater’ loans where payments are not being made, selling homeowners up for whatever they can recover.

Australian house prices have been receding since April 2010 according to RP Data. The supply of houses has exceeded demand since then.

“Falling values and falling volumes over an extended time are decisive indicators of a new bearish trend.”

“Throughout the Buyers’ Strike, Prosper has characterized the bust as ‘Imminent’. We now say the inflection point has arrived: Australian prices have passed Top Dead Centre.

“The fatal puncture was delivered in the Housing Finance figures from the ABS on 6 April. They were shocking – the lowest in 32 years – and followed three months of similar dismal commitments. First home buyer commitments showed the largest fall.

Why did Prosper wade into the public discourse loudly shouting these negative and painful words?

The Australian property market has peaked. It will now go on to bankrupt speculators and destroy the financial dreams of many innocent citizens. Here we stated:

“Australia is in this fix because governments have consistently failed to adopt the powerful automatic stabilizer of land prices – Land Value Tax – despite the repeated urgings of many senior economists including the Secretary of the Treasury Dr Ken Henry in Australia’s Future Tax System (The Henry Review).

“(Our) fervent wish is that this chaos leads to new taxation arrangements that end the taxing of wages and business with government taking its revenues from economic rents instead.

This has been a truly extraordinary month in Australia’s economic history