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Australian house prices are rising faster than Donald Trump’s hairline. But can this boom in house prices continue?
Yes, it can. Because we simply don’t have enough houses to cater for our growing population.
Property values grew at an astronomical rate of 4.2% in the quarter to June 2009, which forces us to admit it’s more property boom than property doom.
… all that bluster about house prices falling 40%. Pah! It’s as though Australians believe in house prices the same way that naked emperor believed in his non-existent new clothes.
The Housing Industry Association and Residex are warning that some parts of Australia are in a property price bubble, particularly Sydney and Melbourne.
“Sydney has grown more than 6 per cent to July and Melbourne is in this high 5s – if you annualise those rates of growth, it’s something like 28 per cent — a boom,” says Residex’s John Edwards.
“It’s just dangerous. If the average mortgage is $354,000 then a 2 per cent rise in rates will make things very stressful for most families.”
Even the International Monetary Fund says our house prices are too high relative to rents and local incomes.
But the majority of property commentators are pleasantly surprised by how well Australian housing keeps its knickers on and continues to grow.
RP Data analyst Cameron Kusher says it’s better for house prices to grow than to create a shock to the more than $3 trillion of household wealth tied up in housing.
Australian Property Monitors economist Matthew Bell says there is no evidence of a price bubble. “The IMF and the property doomsayers fail to understand the supply problems the Australian market has,” says Bell.
That word ’supply’ always sounds like someone’s drug stash, but is the real reason the prices of our houses keep growing (while the rest of the world suffers price falls).
While property developers can’t get their hands on finance to build more apartments and townhouses, Australia’s housing supply will remain restricted and theoretically prices will keep going up or at least maintain their position.
ABS stats show our population growth is stronger than any time since 1971, thanks to a mini baby boom and strong overseas migration.
A Matusik Property Insights report released last month found the annual housing demand for each state to 2014 is:
Queensland 45,898
New South Wales 36,268
Victoria 35,552
Western Australia 22,463
South Australia 8,146
Tasmania 1,791
Northern Territory 1,386
Australian Capital Territory is 1,898
The capital cities facing the biggest supply problems are:
1. Melbourne, which needs 15,207 houses and 13,875 attached dwellings
2. Brisbane, which needs 12,791 houses and 11,745 attached dwellings
3. Sydney, which needs 12,603 houses and 11,552 attached dwellings
4. Perth, which needs 9,068 houses and 8,108 attached dwellings
With interest rates at their lowest in almost 50 years, prices have risen but the affordability of buying a house has actually improved because we can all afford to take on a bigger mortgage while interest rates are low. But all this does is push up prices.
With more than 8 million dwellings in this country, there are plenty of households and investors who faithfully believe property builds long-term wealth. But are we deluding ourselves? Neil Jenman has argued that Australia does not necessarily have a housing shortage as there are plenty of spare bedrooms in our over-sized suburban homes to take up the slack.
Jenman worries more about rising house prices locking out essential workers like nurses, firefighters and teachers from owning homes.
“When the value of all homes is going up, all it does is widen the gap between those who own and those who don’t — rising house prices are only of benefit if you want to move into a cheaper house and cash the difference,” explains Professor of Public Ethics Clive Hamilton.
So where does Australian property go from here? Should we be worried or woo-hooing about the increasing price of our homes? And how can we solve this issue of “supply”?
