While we continuously read headlines suggesting that the Australian real estate boom is over it is worth remembering it is now entering its third decade. That’s right, over the last 30 years there has been a real estate boom in Australia with house prices rising by an average of 7.25% per annum. While the increase in prices of late has been double-digit in some of the more sought-after areas, it is the general increase in property prices which makes Australia stand out from the rest. So, what has a real estate boom done for the country and the population?
The history of Australia is colourful and interesting to say the least and has attracted a diverse mix of people with different ethnic backgrounds. Even in the early days there was a distinct separation between those with wealth and those without money. However, the ongoing increase in real estate prices has actually changed the landscape of Australia for ever.
There are many areas of the country which were originally populated by the working class and indeed suburbs such as Balmain are noted as the birthplace of trade unionism creating what is now the Australian Labor Party. Historically shipbuilding was the main employer in the area although today this suburb of Sydney has become detached from history with lawyers, doctors and bankers now dominating the population. Demand for property has pushed prices way beyond the reach of the general population with houses now priced in the millions of Australian dollars.
Creating the class system nobody wanted
Australia will always be intrinsically linked with the UK and while an independent Australia always sought to smash the class system which dominated the UK for many years much of the early work has now been undone. A report by the Australian Council of Social Service shows that between 1995 and 2012 the income of the bottom 20% of the population rose by 44% while the top 5% saw nearly double that increase at 78%. The class system the country fought for so many years to avoid has arrived and the gap between the haves and the have-nots is growing.
It is also interesting to see that even those from more modest backgrounds who have benefited from the rise in property prices may be asset rich but cash poor. The obvious thing would be to sell up and downsize but many people in this position are retired, enjoy their current environment and are reluctant to move.
Maintaining forward momentum
Even though many politicians like to wax lyrical about helping first-time buyers in some of Australia’s more sought-after regions, many of the policies that they introduce seem more in favour of corporate Australia. There was even an investigation earlier this year into the impact foreign investment is having on the Australian real estate market. This was seen by many as a way to placate angry voters, who are unable to climb onto the property ladder, by potentially shifting the blame to foreign investors. As it happens, even though foreign investment has increased dramatically in Australia in recent times the actual impact on real estate prices is minimal.
Australia is a vast country with extreme variations in landscape, climate and economic activity. Many of the more sought-after employment opportunities are centred round the major cities such as Sydney which will always feed demand for local property. Even though property prices cannot keep increasing forever it is difficult to see any significant downturn while the economy remains relatively strong. It is also worth noting that Australia was one of the few countries in the world not to slip into recession after the 2008 US mortgage crisis which led to an unprecedented worldwide economic downturn.