Over the last 10 years or so we have seen periodical concerns that the Australian property market is out of control, creating a dangerous bubble which is about to burst. We have seen government, opposition leaders and an array of consumer associations across Australia looking at ways to control property prices and allow the younger generation to move onto the property ladder. At this moment in time we are in the midst of yet another period of concern about Australian property prices which have more than trebled since 1997.
In some ways the difficulties experienced by the younger generation looking to acquire their first property in Australia is a perfect reflection of the situation many first-time buyers are experiencing in the UK. However, there are a number of reasons why Australian property prices have risen so significantly and why perhaps we could be looking at a period of consolidation over the next decade.
Interest rates, economic growth and immigration
Australian interest rates have remained relatively low for some time now, the economy did not even dip into recession during the worldwide downturn in 2008 and life in Australia is attracting an array of expats from Asia. All of these issues have come together to push Australian property prices higher and higher with 2013 seeing an increase of 10% which is the fastest growth in real estate prices over the last three years.
Quote from PropertyForum.com : “On the surface, the International Monetary Fund’s (IMF) warning about a potential “overshoot” in Australian property prices and a suggestion that regulators need to scrutinise property investment finances, is starting to sound like the US mortgage crisis situation of 2008.”
In a similar way the economy has suffered from regular bouts of concern regarding economic growth which have on the whole failed to materialise. The current government, and previous governments, all tend to look forward and invest for the future and in many ways the prosperous times at the moment are a result of decisions taken some time ago. As a consequence, it does look as though economic growth in Australia will continue for some time to come, interest rates will remain competitive and the growing number of job opportunities will continue to attract expats from around the world.
Property prices in major cities
When you bear in mind that Sydney and Melbourne, just two of an array of influential cities within Australia, were labelled the fourth and fifth most unaffordable cities respectively in a recent Demographia International Housing Affordability survey it is not difficult to see where concerns of a property price bubble have emerged from. However, it is also easy to forget that 87% of the Australian population live within the major cities of the country and thereby the scarcity value of property will obviously have an impact upon their rising values.
When you also bear in mind that the more well-paid employment opportunities will also be based in and around Australia’s major cities it is difficult to get away from the self-fulfilling prophecy of rising property prices. In time we will see an expansion of Australia’s major cities but due to the type of terrain there are limits as to how far city expansions can go.
On the surface it is easy to assume that Australia is in the midst of a potential house price bubble but if you look at the economy, the terrain across Australia and the fact that 87% of the population live within Australia’s major cities, perhaps the ongoing squeeze in property prices was always inevitable. Some experts believe we will see a period of relative consolidation over the next decade although this may come too late for those looking to join the property ladder for the first time with many of the younger generation having given up already.