Let’s debunk a couple of myths about the Australian property market.
It’s the most expensive in the world, the scaremongers say. Well, actually, they are wrong.
A lot of this depends on how you define expensive but one of the best ways to measure this is to compare incomes with house prices. And once you do, you discover that our property market runs in the middle of the pack.
We are certainly a lot more expensive than America or Japan. But Japan has been an economic basket case for nearly 20 years and America is only just emerging from one of the worst property market meltdowns in its history. So it is a little disingenuous to compare them with us.
Believe it or not, but we are level pegging with Canada, we are slightly more expensive than the UK and we are far cheaper than Denmark, the Netherlands and even New Zealand.
It is worth remembering too that we are a highly urbanised society, with the vast bulk of the population congregating in a handful of cities that hug the coastline. America by contrast has a vast array of cities spread across the country.
The biggest factor affecting affordability in Australia is interest rates. Back before financial deregulation in 1983, money was rationed and rates often were in double digit territory. And during the recession of the early 1990s, they shot up to around 17 per cent.
As rates have come down, demand has increased and prices have risen. Until midway through last year, Australian residential property prices fell by as much as 7 per cent from their 2010 peak.
When combined with a series of cuts to interest rates – 200 basis points in the past 18 months – housing affordability suddenly has risen to its most attractive in almost a decade. That’s prompted many forecasters to up their estimates for price growth this year and next.
But while many would-be buyers have indicated in surveys that they think now is a good time to buy, many still are tentative.
First home buyers are almost completely absent from the market right now. That’s because many rushed in to take advantage of government assistance – federal and state – and since those incentives have been withdrawn, there’s a dearth of buyers now.
Sydney is leading the property market at the moment. On an annual basis, price rises are running at about 3.1 per cent compared with just 1.2 per cent in Melbourne. In south east Queensland – which has been hit hard by the downturn in tourism as a result of the strong Australian dollar – barely any price rises are registered.