An economist and hedge-fund manager went undercover and found that Australia now has 'one of the biggest housing bubbles in history'. Bronte Capital's chief investment officer John Hempton and economist Jonathan Tepper toured suburbs across north-west and south-west Sydney to view housing developments and met with 20 mortgage brokers three weeks ago. They discovered that mortgage brokers were advising them to lie on loan application documents about the deposit for a house and about income, the Australian Financial Review (AFR) has reported. Mr Tepper, founder of research house Variant Perception, has used a number of charts to support his housing bubble theory. Scroll down for video Residential properties along Sydney's harbourfront: Australian real estate prices, particularly in Sydney and Melbourne, have soared in recent years Pictured: economist and founder of research house Variant Perception, Jonathan Tepper 'Australia is simply in a league of its own when it comes to mortgage lending': Australians have a greater proportion of mortgage debt than other countries When the pair asked banks to call their employer, 'both reputable and disreputable brokers said banks rarely verified payslips,' Mr Tepper wrote in a report. They also encountered developers lying about units and houses being sold in the west, the 'epicentre' of the housing bubble. To Mr Tepper's surprise, some of Sydney's poorest suburbs, such as Blacktown, Rooty Hill and Mount Druitt in Sydney's west had properties selling from $500,000 to $700,000 - prices that are at least eight times the income of people from those areas. A rising share of these mortgages are 'interest only' loans The negative gearing effect: one of the most politically controversial subjects in Australia right now 'The further west I went, the more irrational it felt. Lots and lots of supply and prices that bore no resemblance to construction cost and income of people around there,' Mr Hempton told AFR. There were more advertisements for deposit guarantees, where rather than putting a deposit down on a house you can take out an insurance contract that will pay the deposit if you default. Another shocking revelation was that the verification of documents was sometimes done by Indian call centres, according to Mr Hempton. Australian housing prices do not line up with construction costs, rents and household incomes On loan applications low-income earners were often offered discounts on the advertised mortgage rate of up to a one percentage point, increasing the vulnerability of the banks if there were a correction. Mr Hempton claims they were 'coached on how to get things through banks' as opposed to banks having high quality underwritings. In Mr Tepper's report, he warns of sharp fall in Australian bank stocks and predicts falls in the Australian housing market of up to 50 per cent in Sydney and Melbourne and of about 80 per cent in mining towns. Australia's household debt is flying high above the simple world average 'Australia now has the highest level of household debt to GDP in the entire world.' Sydney property agent Starr Partners' chief executive Doug Driscoll the Sydney market will remain robust despite a boom being unlikely this year, with experts expecting only single digit growth rates. 'If you look at the 10 to 15 year average, Sydney is still well above that average.' Daily Mail Australia has contacted LF Economics for further comment. Property ownership is the highest direct contribution to Australia's GDP by industry A sold sign is displayed in front of a house in Sydney: Australia's opposition Labor Party is proposing scaling back tax breaks for landlords that have helped fuel a 50 percent increase in property prices since 2008
Economist , Peter Jones , and hedge - fund manager , John Hempton , have been undercover in Australia to view housing developments and meet with housing developers . They both concluded that Australia now has " one of the biggest housing bubbles in history . "