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Economists have rubbished claims that Australia is in the middle of a property price bubble that is set to burst
TALK IN the residential property market has for a long time centred on two words: ‘property bubble’.
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So what is the property bubble, and are we really in one?
Some analysts will argue Australia is in the depths of the world’s largest bubble, and that this bubble is set to burst.
Professor Steve Keen from the University of Western Sydney believes property prices could fall by as much as 40 per cent in the next 10 to 15 years.
But his claims have been rubbished by other economists.
AMP’s chief economist Shane Oliver says while property prices will inevitably soften over the coming few years, a 40 per cent fall is impossible.
“Houses are approximately 25 per cent overvalued in Australia,” he says. “Does that mean we will see house prices fall by 25 per cent in order to come back into line with their true value? Absolutely not.
“We will experience an elongated period of house price softening, but we won’t see an elongated period of house price falls.
The Housing Industry Association’s chief economist Harley Dale agrees and is quick to stress that Australia is not in a house price bubble.
According to Mr Dale, for property prices to fall sufficiently to warrant using the term ‘bubble burst’, supply would have to increase significantly.
“We are not building enough houses to cope with the ongoing demand. For this reason alone, property prices will never crash, fall or slump,” he says.
Data from the Housing Industry Association suggest Australia built 22,000 too few dwellings in 2009/2010.
This deficit is not expected to improve in 2011/2012, with housing starts having increased in just two of the past 10 years.
“This delivers a very poor scorecard on new home and rental market affordability, which especially hurts aspiring first home buyers and lower-income households,” Mr Dale says.
“The housing supply crisis is upon us now and without proper leadership from the federal government, it is only going to escalate.”
According to Mr Dale, the government is well placed to resume concrete action to reform the supply side of Australia’s housing market, including assisting the states to remove stamp duties on new homes and removing planning and development bottlenecks.
