Property investment in Australia is our default wealth play. That’s a problem.

1) The scale of Australia’s property bias

The easiest way to see Australia’s investing bias is to look at household balance sheets. Residential land and dwellings are by far the biggest store of wealth in the country. Recent figures put household property holdings at roughly $11–12 trillion, several times larger than what households hold in shares outside super and still well ahead of superannuation itself. In plain terms, property isn’t a slice of the pie — for many households it is the pie.

That concentration is not just about home ownership. It flows into investment behaviour. Even Australians who hold diversified assets through super often aim their “extra” savings at property first. The cultural default is clear: if you’re doing well, you upgrade; if you’re getting ahead, you buy a second place; if you want to set your kids up, you help them buy.

Share ownership is not small in Australia, but it isn’t treated with the same instinctive confidence. The ASX Australian Investor Study shows millions of Australians invest in shares or ETFs, yet property still dominates the national conversation because housing is visible, local and heavily financed. We talk about offset accounts, vacancy rates and renovation ROI more than we talk about dividends, earnings or whether a business can scale globally.

2) Why property keeps winning

There are three drivers behind the habit, and they reinforce each other.

The first is leverage. Property is the one asset class where ordinary households can borrow large amounts for long periods at relatively low margins. If your income is stable, lenders will back you into a $700k or $1.2m property in a way they never would for a share portfolio. Leverage magnifies gains in rising markets, so property success stories spread fast.

The second is incentives. Australia’s tax settings tilt toward housing. Negative gearing lets investors deduct rental losses against other income, and the capital gains tax discount reduces tax on profits when property is sold. These concessions are not neutral; they make leveraged property look better after tax than many alternative investments. Grattan Institute’s Hot Property analysis argues these settings lift demand for existing homes without doing much for new supply. The result is higher prices, not higher productivity.

The third is narrative and familiarity. Housing feels understandable in a way business investment doesn’t. You can walk through a unit, touch the walls, see the street, and tell yourself it’s “real”. Shares look abstract by comparison, even when you’re buying ownership in companies with actual cashflow, staff, exports and technology. Comfort wins more than spreadsheets.

3) The economic costs of too much housing investment

Property investment helps households build wealth, but a property-heavy national portfolio has real macro costs.

The first cost is capital misallocation. When savings chase existing dwellings, they don’t fund productive assets. The Reserve Bank has warned that Australia’s private-sector investment has been too soft for too long, and that weak capital spending is a drag on future productivity and living standards. An economy that doesn’t modernise its productive base doesn’t lift wages sustainably.

The second cost is volatility through debt. Australia channels a large share of bank lending into mortgages. Those loans are well secured, but the side effect is that consumption and confidence become hostage to interest-rate cycles. When rates rise, households pull back sharply because so many budgets are tied to mortgage repayments.

The third cost is inter-generational strain and slower dynamism. Rising property prices transfer wealth to existing owners and widen the gap for first-home buyers. That’s not just a social problem — it distorts behaviour. Young households delay family formation, delay moving for work, and delay starting businesses because the deposit hurdle is so high relative to wages.

There’s also a quieter cost: we start to confuse asset inflation with progress. A rising median house price doesn’t mean the economy is producing more, innovating more, or exporting more. Often it just means the same stock of homes is being traded between Australians at higher prices, funded by bigger loans.

4) What a shift to productive investment could unlock

If even a modest slice of household capital moved toward productive Australian businesses — via listed shares, ETFs, private equity, venture-style funds, or direct ownership — the payoff would be real and measurable.

More equity funding helps companies grow without leaning purely on bank debt. It supports research, technology adoption, advanced manufacturing, energy transition projects, and new export capacity. Those are the areas that drive genuine productivity: doing more with the same workforce, lifting output per hour, and pushing wages higher without needing another housing boom.

This matters because Australia is not a low-skill country waiting to be rescued by mining cycles. We have a highly educated population, deep professional capability, and a strong base of entrepreneurs. The limiting factor has never been talent. It’s been where our savings get deployed. Capital that backs productive firms turns human skill into national income.

It also builds resilience. A household with diversified assets is less exposed to a single local property downturn, and a national economy with a broader investment base is less dependent on housing cycles to feel “healthy”.

5) What needs to change — policy and personal behaviour

At a policy level, the direction is clear even if the politics are hard. We need to rebalance incentives so they don’t automatically favour leveraged speculation in existing dwellings. That doesn’t mean banning investment property. It means trimming distortions so capital can flow to uses that lift productivity.

One obvious place is housing tax settings. Moderating negative gearing benefits for existing stock, adjusting the CGT discount on housing, or redirecting concessions toward new supply would reduce the bias without removing property from portfolios. If the rules reward building new assets rather than trading old ones, investment follows.

The other lever is capital-market confidence. Australians need a more normal relationship with business investment, where buying productive assets is not treated as a niche hobby compared with buying a second house. Better financial literacy helps, but so does policy that supports long-term investing and deeper local capital markets.

At a household level, the change is simpler: treat property as one tool, not the whole toolkit. A balanced plan might include a home, maybe an investment property, and a meaningful allocation to diversified shares and business assets. The aim isn’t to abandon housing — it’s to stop using housing as the only answer to every wealth question.

6) A practical lens for investors and borrowers now

For Australians who already hold property, the question isn’t “should I sell everything and buy shares?” That’s not realistic, and it misses the point. The question is how you reduce concentration risk from here.

Start by separating the emotional home decision from the investment decision. Your home can be a lifestyle anchor. Your investments should work as a portfolio. If you already have high exposure to property, your next incremental dollar doesn’t automatically need to go into another dwelling. It can go into diversified business ownership, including shares and ETFs, or into extra super contributions that are invested well beyond housing.

For households choosing between “buy to live” and “buy to invest while renting”, strategies like rentvesting can make sense when they’re used to create flexibility and remove pressure from overstretched local markets. The key is to treat the property decision as part of a broader plan, not a reflex.

If you are borrowing for property, focus on resilience. Property-heavy economies are more rate-sensitive, so the best personal defence is strong cashflow buffers and a loan structure that won’t trap you. A clear understanding of features and trade-offs (offsets, split loans, repayment flexibility) matters more than a headline deal, which is why the Home Loan Guide exists.

And if you already own property, keep reviewing your loan like you would review any other investment cost. Quiet “loyalty” pricing is a real drag on returns. A fast check with a rate review calculator can show whether your current structure still holds up against the market.

7) Bottom line

Australia’s love of property is understandable. Housing is tangible, familiar and has built real wealth for millions of families. But when a national investment habit turns into a system-wide bias, it shapes everything: house prices, bank balance sheets, household debt, productivity, wages and even the kinds of businesses we build.

A smarter balance doesn’t require tearing property down. It requires widening the story. We can keep housing as a pillar of household wealth while also funding the next generation of Australian companies — the ones that will create jobs, lift wages, and push Australia to the front of the pack in innovation and real productivity. With the talent we have, the only missing ingredient is where we choose to put our capital.