Places like Wollongong, south of NSW, which is one of the lowest populated areas with an unreasonably excessive house price to income ratio in the world, may also fall prey to huge price falls.

"I don't mean to pick on Rouse Hill but it is the area where it [lending standards] were the worse we have found," he said. "I look at house prices and income and they don't match."

There has been a sea of housing lots for sale in Rouse Hill, where the new metro will run to. Supplied

"House [prices] in western Sydney don't make sense no matter how much you cut it."

In the interview, Mr Hempton says he and Mr Tepper found brokers in western Sydney who knew how to navigate bank lending loopholes and knew "blokes who could get things done". These "things" included doctoring tax returns.

He said the new north-west metro fast train was also part of the "fantasy" justifying expensive home purchases. The train opens this month.

"In non-aspirational places, houses were trading 17 to 18 times income. All we went to prove was that the lending standards were really really low," he said.

Shock absorber


But he says any housing market and economic "crash" will likely come to a "medium landing" mainly because price falls will be isolated to suburban sub-markets and Australia's flexible currency will act as a shock absorber.

Collapsed housing markets in Ireland and Spain had fixed currencies.

Should Australia's currency fall to, say, US40¢ in the event of a "crash", the cheaper Australian dollar will boost massive growth in tourism and drive up mining, Mr Hempton said.

"Large parts of Australia will be flying. Australia suddenly becomes the cheapest place to have a beach holiday ... there will be a boom all the way up the coast to Queensland," he said.

"Australian iron ore will be back at the top of the bull market.

"The slump will be ugly but we have a safety valve and the valve is that there will be big streams of income coming from elsewhere in the Australian economy.

"If you have a house in north-western Sydney, that doesn't save you from being a long way underwater in the mortgage, but it does mean you can go work in a mine or your kids can go work in a mine and get some income. In other words, there are some safety outlets."