Will we see another housing boom, or bust?

The property sector breathed a huge sigh of relief with the surprise re-election of the Morrison government. They had feared the cuts in the negative gearing concessions, and the increase in capital gains tax proposed by the Shorten opposition.

This relief has been supported by the effective announcement by the Reserve Bank of a cut in the official cash rate at its June board meeting, by the relaxation of lending restrictions by the banking regulator, and by the expectation the Morrison government will push its promised personal tax cuts through the Parliament at the earliest opportunity and move quickly to implement its new first home owners' scheme.

Real estate agents, property councils and others, with the support of their mates in the media, have been flat out talking up the housing sector, in particular.

It can't be ignored that Australia has a huge debt bubble in the housing market, with household debt nearly the highest in the world.

While it is reasonable to expect some early improvement in consumer sentiment, the key question is whether this will result in a sustainable lift in the housing market, with a bottom to falling house prices and a general increase in housing activity.

I seriously doubt it will. It can't be ignored that Australia has a huge debt bubble in the housing market, with household debt nearly the highest in the world at close to 200 per cent of household disposable income (and some 120 per cent of GDP). New housing starts have been collapsing, as has the construction sector more broadly, which will surely contribute to increased unemployment, especially as bank lending for developments has been essentially closed.

Much of bank lending has been sub-prime, as evidenced by the banking Royal Commission which demonstrated that, driven by greed, the banks had lent many borrowers much more than they could afford. For example, in the current case brought by ASIC against Westpac it has been argued that Westpac breached the law in relation to 261,987 home loans approved between December 2011 and March 2015. Of these, 154,351 were interest only.

Recent months have seen an increasing number of borrowers in "negative equity", where the market value of their house has fallen to be less than the outstanding loan, which usually results in the bank seeking more cover, which most borrowers can't deliver. There has also been a significant increase in mortgage stress as borrowers find it increasingly difficult to meet their regular mortgage commitments.

The housing market has also been hit by the disappearance of investors and Chinese buyers, the APRA requirement for interest only resets to principal and interest, and the overall bank response to the Royal Commission to effectively stop lending, such that bank housing finance is at historically low levels.

So, it is a bit much to expect that all these structural weaknesses in the housing sector will be turned around by the election's positive impact on confidence and market sentiment, although things may seem to be better for a time.

Structural market weaknesses have a habit of ultimately coming to the fore. However, the Morrison government's strategy will be to delay them for as long as possible. Their election campaign was built on the slogan of "A Strong Economy" and a commitment to keep it strong, indeed, to make it stronger.

If home borrowers flood back to the market, banks do start to lend again and house prices turn around, won't all this compound what is already a serious housing and debt bubble, which must ultimately burst?

Moreover, there is mounting evidence that our economy is not actually as strong as the government claimed during the election campaign.

The last two quarters of measured GDP growth were very weak, not much above zero rates per quarter, and the unemployment rate has started to increase again, with nearly twice that rate underemployed - unable to get as much work as they wish.

The Reserve Bank has also basically halved its growth forecast for this year. Global growth is stalling, Trump has initiated a trade war with China, financial markets are both fickle and volatile and there are a host of geo-political tensions, all of which expose us to an unpredictable global environment.

Obviously, Morrison is a successful salesman. However, I doubt he can sell his way through this one. Watch the next GDP number due very soon.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader