Australian property bubble
Encyclopedia
The Australian Property bubble is an observation that real estate
prices in Australia
are (currently) valued at more than they are worth. This is a real estate bubble
.
A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble
that occurs periodically in local or global real estate
markets. It is characterized by rapid increases in valuations
of real property
such as housing
until they reach unsustainable levels and then decline.
In the late 2000s, housing prices in Australia, relative to average incomes, were among the highest in the world, prompting speculation that the country was experiencing a real estate bubble, like many other countries.
The 'Housing Affordability in Australia - Good house is hard to find' report stated that "the average house price in the capital cities is now equivalent to over seven years of average earnings; up from three in the 1950s to the early 1980s."
Some factors that may have contributed to the increase in prices are;
These factors are stated to have increased property prices in Australia. Any one of these factors in isolation would be unable to provide the framework for the asset inflation now evident.
The RBA has noted that there are "a number of areas in which the taxation treatment in Australia is more favourable to investors than is the case in other countries."
The increase in debt was related to the easing of lending standards, the absence of capital gains tax
on principal residences, Capital Gains Tax discount (50%) on investment properties after 1999, negative gearing
availability for second-hand homes, the First Home Buyers Grant and increase in household incomes.
Some of these factors added especially to the borrowing power of investors. Debt growth averaged 15% per annum compounding (1998–2009). During the same period national economic growth was less than 3% with debt stripped out.
Between 1998 and 2008 inflation was about 36% and property prices increased by more than 300% in all capital cities except Melbourne (up 280%) and Sydney (up 180%).
, not to rent them out. The houses just sit vacant because they are after capital growth."
In April 2010, the government announced amendments to policies to "ensure that foreign non-residents can only invest in Australian real estate if that investment adds to the housing stock, and that investments by temporary residents in established properties are only for their use whilst they live in Australia."
Under the rules, temporary residents and foreign students will be:
Failure to do this would also lead to a government-ordered sale.
The Economist (21 Oct 2010) found that Australian house prices were overvalued by 63.2%, stating that "Our analysis of 'fair value' in housing, which is based on comparing the current ratio of house prices to rents with its long-run average, suggests that China has less to worry about than the likes of Australia, which is again the most overvalued of the markets we track. That makes it all the more surprising that Australia’s central bank opted not to increase its benchmark interest rate this month."
An earlier study by The Economist had found that Australian property was "the most overvalued of any of the 20 countries we track."
The Australian
newspaper reported in May 2010 that house prices had "soared 20 per cent in the 12 months to March"
The Head of Financial Stability at the RBA has said that "If rental yields are very low, investors are buying properties without really thinking about the rental yield" and that "Buying an asset just because you are expecting the price to rise in the future, well that is actually the academic definition of a bubble."
Australia topped the 2011 '7th Annual Demographia International Housing Affordability Survey' for the second year in a row with the most severely unaffordable property market in the world. The survey was based on a correlation of median house price divided by gross annual median household income. This is shown in Chart 6: 'Melbourne House & Wages 1965 - 2010' which shows the rise of housing costs relative to incomes for Melbourne.
According to the Australia’s Institute of Public Affairs, the most recent Demographia study (2011) "demonstrated that government planning restraints creating a scarcity of housing land were the overwhelming cause of Australia's high prices. . . Self-proclaimed housing experts have denied that high housing prices in Australia result from our planning and regulatory system"
The Demographia survey compares Australia with five other countries and uses house price to gross income as the key measure. Other important factors such as disposable/discretionary income, credit availability, tax incentives, comparative dwelling size/quality are not taken into account.
Some surveys that take these factors into account place Australian cities as being more affordable than the Demographia survey. For example the "Numbeo: House Price to Household Disposable Income Ratio" shows London at 15x disposable income, Singapore 14x, Tokyo 12x, New York 8x and Sydney 7x.
The GlobalProperty Most Expensive Cities 2009 survey(apartment price per sqm) shows Sydney at #28.
The "Mercer Most Expensive Cities" survey measures cost of living including housing and shows Sydney at #21.
The "CityMayors Expensive Cities" survey shows Sydney at #24.
The government's response to the report stated that "There is no conclusive evidence that the tax system has had a significant impact on
house prices."
In 2008, another study was commissioned – the 2008 Senate Select Committee on Housing Affordability in Australia. The report noted that "On some measures, housing affordability is at a record low."
'Australia's Future Tax System' (AFTS) review, more commonly known as the 'Henry Tax Review', made a number of recommendations that would have impacted on the housing market, including:
In regard to recommendations of changes to tax policy that might impact the housing market, the Government advised "that it will not implement the following policies at any stage" (excerpt of list):
In April 2008 the IMF again stated that Australia's property market was overvalued and close to 25% higher than could be explained by changes in underlying fundamentals. Other analysts argued that the rise in property prices was explained by peculiarities of the tax system.
In April 2010, The Economist house price indicators estimated Australian house prices were the most overpriced in the world, at 56.1% overpriced (against long-run average of price to rents ratio).
According to Edward Chancellor
, a US-based investment strategist and financial author, Australia is "in the midst of an unsustainable housing bubble that could burst at any time" and "house prices are more than 50 per cent above their fair value -- a once in 40-year event."
A counter view was expressed by a senior economist with the Commonwealth Bank, who stated that Australia did not have the high unemployment levels of the US or UK and that there was "an extremely low" rate of late debt payments. He also noted that Australia's high population growth was likely to lead to "an undersupply of dwellings in the next few years, not an oversupply."
Equally, Investment Bank Goldman Sachs (GS) reported in August 2010 that "Australian housing is not in a speculative bubble but could be up to 35 per cent overvalued," explaining that there is a "very big difference between a speculative bubble and a period of overvaluation."
In November 2010, The Weekend Australian reported that "Treasury officials preparing the so-called Red Book of briefs for the incoming government were as divided as private sector economists about the strength of the property market."
In December 2010, an MLC investments strategist observed that "residential property looks absolutely obscenely overvalued and seems to offer very, very poor investment prospects."
In March 2011, Morgan Stanley
global strategist Gerard Minack said that "we've had 20 years where the Australian consumers have been willing to borrow more to buy an asset that they believe always goes up in value. The classic sign of an asset bubble." and that "home prices are 30 to 40 per cent above fair value."
In October 2009, it appeared that the pricing of homes was being inflated by actions taken in October 2008 aimed at addressing the fallout from the GFC
. Housing was identified as an asset class worth shoring up against the type of deleveraging seen in the stockmarket.
The government increased assistance given to first home buyers as part of its 'Economic Stimulus Strategy',. A substantial reduction of RBA
interest rates also played a part in maintaining prices.
1987: Negative gearing
is reintroduced.
1998 to 2008: real net national disposable incomes increase by 2.8% a year on average from about $32,000 to about $42,000 per year. There is a rise in the number of two-income households, relaxation of lending standards, active promotion of real estate as an investment, population growth creating demand that was not matched by supply, planning and land release issues and a tax system that was skewed in favour of property investors.
1999: Capital Gains Tax reduced from 100 to 50 percent (for property held at least one year), while 100 percent of costs remained deductible.
2000: July - The Federal government introduces the First Home Owners Grant of $7,000 for established homes, and $14,000 for newly built homes.
2003: The government, in seeking to address rapidly rising property prices, set up a Productivity Commission
Inquiry.
2004: The Productivity Commission Inquiry on 'First Home Ownership' published its findings (No. 28, 31 March 2004). It identified several factors that had contributed to the rapid increase in real estate prices, including overall fairness of the tax system, lending regulations, lower interest rates and planning issues.
2008: A Senate Select Committee on Housing Affordability was established. Its final report 'A good house is hard to find' included dozens of recommendations.
2008: October - The First Home Owners Grant Boost is introduced as an addition to the First Home Owners Grant. This consisted of an extra $14000 available to first home owners buying or building a new home, as well as an extra $7000 made available for established homes. First Home Saver Accounts are also introduced, where the Federal Government will contribute up to $850 per annum towards savings for a deposit to purchase housing.
2008: December - FIRB rules allow temporary visa holders including students, to more easily buy up 'second-hand dwellings'. Changes did not require notification of sales be made to the FIRB and the $300,000 cap on price was removed.
2009: October - First Home Owners Grant Boost is withdrawn. The UNSW City Futures Research Centre director said "the boost has resulted in inflated prices" and had created "a bit of a mini-bubble". A senior economist of Housing Industry Association (HIA) said the boost has not pushed prices up significantly.
2009: November - "capital city house prices . . climbed average 10 per cent" in 2009. Melbourne led the "house price boom, with values up 14.9 per cent in the 10 months . . to an average of $481,247."
2009: December - Reporting of RE data was questioned by one source: "AVERAGE house prices have been overstated by up to 18 per cent by the real estate industry . . . In September the average house price quoted by the Real Estate Institute of Victoria was $67,000 higher than the official figure, based on preliminary valuer-general data . . "
2010: January - The removal of First Home Owners Grant Boost. Mortgage applications reduce by 21.2%. First-home buyers account for 13.1 per cent of new loan applications in December, whereas nine months previously they were at 28.1 per cent.
The Economist
warns that Australian prices had effectively raced ahead of reasonable rental yields stating; "In the American housing market . . homes are priced at around fair value on the basis of rental yields
, but they are overvalued by almost . . 50% in Australia, Hong Kong and Spain." Spain subsequently had a property crash.
2010 March: ABS declares that house prices "soared 20 per cent in the 12 months to March" - a rate that was described as the "fastest ever recorded" in Australian history. The Head of Australian economics at National Australia Bank admits "This is a shocker".
2010: April - Rules allowing foreign investment in real estate that were introduced in 2008 are withdrawn. Temporary residents are required to sell their Australian property when they leave Australia.
2010: May - 'Australia's Future Tax System' (AFTS) Review (aka 'Henry Tax Review
') makes a number of recommendations on policies that could affect the housing market.
The government responds to the AFTS review findings with a report 'Stronger, Fairer, Simpler: A Tax Plan for our Future'.
RBA Cash rate is raised to 4.5%. Rates for major banks now vary between about 7.2% and 7.5%.
2010: November - The RBA raises interest rates 0.25% to 4.75% citing the "economy is now subject to a large expansionary shock from the high terms of trade"
2011: February - New housing loans approved by Australian banks fall 5.6 per cent to a 10-year low in February.
2011: March - Prosper Australia launches a campaign for a "buyer's strike" in an effort to drive down prices.
2011: April - Melbourne
median home price falls by $36000 (6%) to A$565,000 in March Quarter.
2011: May - The number of properties for sale in Melbourne double.
2011: June - Number of home loans in arrears 90 days overdue, rises to 15 year high.
International property bubbles
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
prices in Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
are (currently) valued at more than they are worth. This is a real estate bubble
Real estate bubble
A real estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets...
.
A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...
that occurs periodically in local or global real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
markets. It is characterized by rapid increases in valuations
Real estate appraisal
Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently...
of real property
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
such as housing
House
A house is a building or structure that has the ability to be occupied for dwelling by human beings or other creatures. The term house includes many kinds of different dwellings ranging from rudimentary huts of nomadic tribes to free standing individual structures...
until they reach unsustainable levels and then decline.
Australian Property Market
The Australian property market has shown steady increases of around 3% per annum since the 1970s. Since the 1990s however, prices have risen by around 6% per annum.In the late 2000s, housing prices in Australia, relative to average incomes, were among the highest in the world, prompting speculation that the country was experiencing a real estate bubble, like many other countries.
Rising house prices
All capital cities, with the exception of Sydney, have exhibited strongly increasing prices since about 1998-9. Sydney house prices increased from $573,000 to $671,500 (+17%) between 2003 and 2010 while other capitals have basically doubled in price since 2003.The 'Housing Affordability in Australia - Good house is hard to find' report stated that "the average house price in the capital cities is now equivalent to over seven years of average earnings; up from three in the 1950s to the early 1980s."
Some factors that may have contributed to the increase in prices are;
- Loosening of credit standards (Loan to Value Ratios LVR of 95% still available)
- Low interest rates from 2008 onwards (increasing borrowing capacity)
- Limited government release of new land (reducing supply)
- A tax system that favours investors and existing home owners.
- Limited stock - there appear to be lower levels of existing property sales in 2009/2010 as compared to previous years, reducing supply.
- High population growth (now about double the world average - see Population growth rates chart).
- 2008 foreign investment rule changes for temporary visa holders
- Unregulated property investment seminars promoting the purchase of investment properties
- speculative demand for housing due to a public perception of real estate as a sure bet.
These factors are stated to have increased property prices in Australia. Any one of these factors in isolation would be unable to provide the framework for the asset inflation now evident.
Influence of Tax system
Investors using their superannuation have a tax advantage compared to 'savers' who are effectively taxed up to 70% on income from bank interest or bonds.The RBA has noted that there are "a number of areas in which the taxation treatment in Australia is more favourable to investors than is the case in other countries."
Land price inflation, CPI and Interest rates
Total household debt as a percentage of disposable income was about 45% in 1990 and 155% in 2009. In the same period, housing debt to disposable income increased from about 35% to 140%. During the same period of time the CPI increased by 62.7%.The increase in debt was related to the easing of lending standards, the absence of capital gains tax
Capital gains tax
A capital gains tax is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property...
on principal residences, Capital Gains Tax discount (50%) on investment properties after 1999, negative gearing
Negative gearing
Negative gearing is a form of leveraged speculation in which a speculator borrows money to buy an asset, but the income generated by that asset does not cover the interest on the loan...
availability for second-hand homes, the First Home Buyers Grant and increase in household incomes.
Some of these factors added especially to the borrowing power of investors. Debt growth averaged 15% per annum compounding (1998–2009). During the same period national economic growth was less than 3% with debt stripped out.
Between 1998 and 2008 inflation was about 36% and property prices increased by more than 300% in all capital cities except Melbourne (up 280%) and Sydney (up 180%).
Foreign Investment in residential property
In December 2008, the federal government introduced legislation relaxing rules for foreign buyers of Australian property. According to FIRB (Foreign Investment Review Board) data released in August 2009, foreign investment in Australian real estate had increased by more than 30% year to date. One agent said that "overseas investors buy them to land bankLand Bank
A land bank is a bank that issues long-term loans on real estate in return for mortgages. This term could also apply to:*The Land Bank of Taiwan, a wholly state-owned bank of the Republic of China...
, not to rent them out. The houses just sit vacant because they are after capital growth."
In April 2010, the government announced amendments to policies to "ensure that foreign non-residents can only invest in Australian real estate if that investment adds to the housing stock, and that investments by temporary residents in established properties are only for their use whilst they live in Australia."
Under the rules, temporary residents and foreign students will be:
- Screened by the Foreign Investment Review Board to determine if they will be allowed to buy a property.
- Forced to sell property when they leave Australia.
- Punished if they do not sell by a government-ordered sale plus confiscation of any capital gain.
- Required to build on vacant land within two years of purchase to stop "land banking".
Failure to do this would also lead to a government-ordered sale.
Surveys and popular commentary
Several surveys and popular commentaries have suggested that the Australian housing market is overvalued.The Economist (21 Oct 2010) found that Australian house prices were overvalued by 63.2%, stating that "Our analysis of 'fair value' in housing, which is based on comparing the current ratio of house prices to rents with its long-run average, suggests that China has less to worry about than the likes of Australia, which is again the most overvalued of the markets we track. That makes it all the more surprising that Australia’s central bank opted not to increase its benchmark interest rate this month."
An earlier study by The Economist had found that Australian property was "the most overvalued of any of the 20 countries we track."
The Australian
The Australian
The Australian is a broadsheet newspaper published in Australia from Monday to Saturday each week since 14 July 1964. The editor in chief is Chris Mitchell, the editor is Clive Mathieson and the 'editor-at-large' is Paul Kelly....
newspaper reported in May 2010 that house prices had "soared 20 per cent in the 12 months to March"
The Head of Financial Stability at the RBA has said that "If rental yields are very low, investors are buying properties without really thinking about the rental yield" and that "Buying an asset just because you are expecting the price to rise in the future, well that is actually the academic definition of a bubble."
Australia topped the 2011 '7th Annual Demographia International Housing Affordability Survey' for the second year in a row with the most severely unaffordable property market in the world. The survey was based on a correlation of median house price divided by gross annual median household income. This is shown in Chart 6: 'Melbourne House & Wages 1965 - 2010' which shows the rise of housing costs relative to incomes for Melbourne.
According to the Australia’s Institute of Public Affairs, the most recent Demographia study (2011) "demonstrated that government planning restraints creating a scarcity of housing land were the overwhelming cause of Australia's high prices. . . Self-proclaimed housing experts have denied that high housing prices in Australia result from our planning and regulatory system"
The Demographia survey compares Australia with five other countries and uses house price to gross income as the key measure. Other important factors such as disposable/discretionary income, credit availability, tax incentives, comparative dwelling size/quality are not taken into account.
Some surveys that take these factors into account place Australian cities as being more affordable than the Demographia survey. For example the "Numbeo: House Price to Household Disposable Income Ratio" shows London at 15x disposable income, Singapore 14x, Tokyo 12x, New York 8x and Sydney 7x.
The GlobalProperty Most Expensive Cities 2009 survey(apartment price per sqm) shows Sydney at #28.
The "Mercer Most Expensive Cities" survey measures cost of living including housing and shows Sydney at #21.
The "CityMayors Expensive Cities" survey shows Sydney at #24.
Government inquiries related to housing
In 2002 the government initiated a Productivity Commission Inquiry Report titled 'First Home Ownership'. The report observed inter alia that "general taxation arrangements [capital gains tax, negative gearing, capital works deductions and depreciation provisions] have lent impetus to the recent surge in investment in rental housing and consequent house price increases."The government's response to the report stated that "There is no conclusive evidence that the tax system has had a significant impact on
house prices."
In 2008, another study was commissioned – the 2008 Senate Select Committee on Housing Affordability in Australia. The report noted that "On some measures, housing affordability is at a record low."
'Australia's Future Tax System' (AFTS) review, more commonly known as the 'Henry Tax Review', made a number of recommendations that would have impacted on the housing market, including:
- Introduction of land tax "on all land . . removing disincentives for institutional investment in rental property";
- that "transfer taxes on property should be reduced, and ultimately removed";
- a move to "more neutral personal income tax treatment of private residential rental investment . . through a 40 per cent discount on all net residential rental income and losses, and capital gains."
In regard to recommendations of changes to tax policy that might impact the housing market, the Government advised "that it will not implement the following policies at any stage" (excerpt of list):
- Include the family home in means tests (see Rec 88c)
- Introduce land tax on the family home – this is a state tax and thus an issue for the states (see Rec 52 & 53)
- Reduce the CGT discount, apply a discount to negative gearing deductions, or change grandfathering arrangements for CGT (see Rec 14 & 17c)
Warnings of overvaluation
In 2003 the IMF's 'World Economic Outlook' warned that "housing bubbles in Australia, England, Ireland and the United States" would "burst".In April 2008 the IMF again stated that Australia's property market was overvalued and close to 25% higher than could be explained by changes in underlying fundamentals. Other analysts argued that the rise in property prices was explained by peculiarities of the tax system.
In April 2010, The Economist house price indicators estimated Australian house prices were the most overpriced in the world, at 56.1% overpriced (against long-run average of price to rents ratio).
According to Edward Chancellor
Edward Chancellor
Edward Chancellor is a financial historian, journalist and investment strategist. In 2008, he joined GMO’s asset allocation team.He graduated from Trinity College, Cambridge with first class honours in Modern History, and from St Antony's College, Oxford with a Masters of Philosophy in Modern...
, a US-based investment strategist and financial author, Australia is "in the midst of an unsustainable housing bubble that could burst at any time" and "house prices are more than 50 per cent above their fair value -- a once in 40-year event."
A counter view was expressed by a senior economist with the Commonwealth Bank, who stated that Australia did not have the high unemployment levels of the US or UK and that there was "an extremely low" rate of late debt payments. He also noted that Australia's high population growth was likely to lead to "an undersupply of dwellings in the next few years, not an oversupply."
Equally, Investment Bank Goldman Sachs (GS) reported in August 2010 that "Australian housing is not in a speculative bubble but could be up to 35 per cent overvalued," explaining that there is a "very big difference between a speculative bubble and a period of overvaluation."
In November 2010, The Weekend Australian reported that "Treasury officials preparing the so-called Red Book of briefs for the incoming government were as divided as private sector economists about the strength of the property market."
In December 2010, an MLC investments strategist observed that "residential property looks absolutely obscenely overvalued and seems to offer very, very poor investment prospects."
In March 2011, Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
global strategist Gerard Minack said that "we've had 20 years where the Australian consumers have been willing to borrow more to buy an asset that they believe always goes up in value. The classic sign of an asset bubble." and that "home prices are 30 to 40 per cent above fair value."
In October 2009, it appeared that the pricing of homes was being inflated by actions taken in October 2008 aimed at addressing the fallout from the GFC
GFC
GFC may refer to:In science:** Gell Filtration ChromatographyIn sport:* United Kingdom football clubs:** Gateshead F.C.** Gillingham F.C.** Glapwell F.C.** Glentoran F.C.** Gorleston F.C.** Gretna F.C.** Guernsey F.C....
. Housing was identified as an asset class worth shoring up against the type of deleveraging seen in the stockmarket.
The government increased assistance given to first home buyers as part of its 'Economic Stimulus Strategy',. A substantial reduction of RBA
Reserve Bank of Australia
The Reserve Bank of Australia came into being on 14 January 1960 as Australia's central bank and banknote issuing authority, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank to it....
interest rates also played a part in maintaining prices.
Diverting capital away from the rest of the economy
Increased residential housing costs can cause excessive lending to the residential housing sector, at the expense of businesses. This can lead to "a banking system which allocated capital away from the most productive areas of the economy — business — is ultimately bad for growth, bad for competition, bad for jobs, bad for business and in the end, bad for Australia."Mortgage and Rent Stress
Increased housing prices and therefore increased borrowings can lead to difficulty in meeting housing payments. According to Ratings agency Standard & Poor's (S&P), "Arrears for sub-prime loans backing RMBS [residential mortgage-backed securities] jumped 126 basis points to 11.45 per cent"Timeline
1985: Australian government quarantines interest expenses, so that interest can only be claimed against rental income, not other income.1987: Negative gearing
Negative gearing (Australia)
Negative gearing is a form of financial leverage where an investor borrows money to buy an asset, but the income generated by that asset does not cover the interest on the loan...
is reintroduced.
1998 to 2008: real net national disposable incomes increase by 2.8% a year on average from about $32,000 to about $42,000 per year. There is a rise in the number of two-income households, relaxation of lending standards, active promotion of real estate as an investment, population growth creating demand that was not matched by supply, planning and land release issues and a tax system that was skewed in favour of property investors.
1999: Capital Gains Tax reduced from 100 to 50 percent (for property held at least one year), while 100 percent of costs remained deductible.
2000: July - The Federal government introduces the First Home Owners Grant of $7,000 for established homes, and $14,000 for newly built homes.
2003: The government, in seeking to address rapidly rising property prices, set up a Productivity Commission
Productivity Commission
The Productivity Commission is the Australian Government's principal review and advisory body on microeconomic policy and regulation. It is an independent statutory authority in the Treasury Portfolio and responds to references from the Treasurer...
Inquiry.
2004: The Productivity Commission Inquiry on 'First Home Ownership' published its findings (No. 28, 31 March 2004). It identified several factors that had contributed to the rapid increase in real estate prices, including overall fairness of the tax system, lending regulations, lower interest rates and planning issues.
2008: A Senate Select Committee on Housing Affordability was established. Its final report 'A good house is hard to find' included dozens of recommendations.
2008: October - The First Home Owners Grant Boost is introduced as an addition to the First Home Owners Grant. This consisted of an extra $14000 available to first home owners buying or building a new home, as well as an extra $7000 made available for established homes. First Home Saver Accounts are also introduced, where the Federal Government will contribute up to $850 per annum towards savings for a deposit to purchase housing.
2008: December - FIRB rules allow temporary visa holders including students, to more easily buy up 'second-hand dwellings'. Changes did not require notification of sales be made to the FIRB and the $300,000 cap on price was removed.
2009: October - First Home Owners Grant Boost is withdrawn. The UNSW City Futures Research Centre director said "the boost has resulted in inflated prices" and had created "a bit of a mini-bubble". A senior economist of Housing Industry Association (HIA) said the boost has not pushed prices up significantly.
2009: November - "capital city house prices . . climbed average 10 per cent" in 2009. Melbourne led the "house price boom, with values up 14.9 per cent in the 10 months . . to an average of $481,247."
2009: December - Reporting of RE data was questioned by one source: "AVERAGE house prices have been overstated by up to 18 per cent by the real estate industry . . . In September the average house price quoted by the Real Estate Institute of Victoria was $67,000 higher than the official figure, based on preliminary valuer-general data . . "
2010: January - The removal of First Home Owners Grant Boost. Mortgage applications reduce by 21.2%. First-home buyers account for 13.1 per cent of new loan applications in December, whereas nine months previously they were at 28.1 per cent.
The Economist
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...
warns that Australian prices had effectively raced ahead of reasonable rental yields stating; "In the American housing market . . homes are priced at around fair value on the basis of rental yields
Yield (finance)
In finance, the term yield describes the amount in cash that returns to the owners of a security. Normally it does not include the price variations, at the difference of the total return...
, but they are overvalued by almost . . 50% in Australia, Hong Kong and Spain." Spain subsequently had a property crash.
2010 March: ABS declares that house prices "soared 20 per cent in the 12 months to March" - a rate that was described as the "fastest ever recorded" in Australian history. The Head of Australian economics at National Australia Bank admits "This is a shocker".
2010: April - Rules allowing foreign investment in real estate that were introduced in 2008 are withdrawn. Temporary residents are required to sell their Australian property when they leave Australia.
2010: May - 'Australia's Future Tax System' (AFTS) Review (aka 'Henry Tax Review
Henry Tax Review
The Australia's Future Tax System Review, informally known as the Henry Tax Review was commissioned by the Rudd Government in 2008 and published in 2010...
') makes a number of recommendations on policies that could affect the housing market.
The government responds to the AFTS review findings with a report 'Stronger, Fairer, Simpler: A Tax Plan for our Future'.
RBA Cash rate is raised to 4.5%. Rates for major banks now vary between about 7.2% and 7.5%.
2010: November - The RBA raises interest rates 0.25% to 4.75% citing the "economy is now subject to a large expansionary shock from the high terms of trade"
2011: February - New housing loans approved by Australian banks fall 5.6 per cent to a 10-year low in February.
2011: March - Prosper Australia launches a campaign for a "buyer's strike" in an effort to drive down prices.
2011: April - Melbourne
Melbourne
Melbourne is the capital and most populous city in the state of Victoria, and the second most populous city in Australia. The Melbourne City Centre is the hub of the greater metropolitan area and the Census statistical division—of which "Melbourne" is the common name. As of June 2009, the greater...
median home price falls by $36000 (6%) to A$565,000 in March Quarter.
2011: May - The number of properties for sale in Melbourne double.
2011: June - Number of home loans in arrears 90 days overdue, rises to 15 year high.
See also
- Australian DreamAustralian DreamThe Australian Dream or Great Australian Dream is a belief that in Australia, home ownership can lead to a better life and is an expression of success and security...
- Australian property marketAustralian property marketIn the late 2000s, housing prices in Australia, relative to average incomes, were among the highest in the world, prompting speculation that the country was experiencing a real estate bubble, like many other countries....
- Home ownership in AustraliaHome ownership in AustraliaHome ownership is a key cultural icon in Australia. Australians have traditionally aspired to the modest Great Australian Dream of "owning a detached house on a fenced block of land." Home-ownership has been seen as creating a responsible citizenry; according to a former Premier of Victoria, "The...
- House price indexHouse price index-FHFA/OFHEO:The US Federal Housing Finance Agency publishes the HPI inx, a quarterly broad measure of the movement of single-family house prices....
- Real estate bubbleReal estate bubbleA real estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets...
International property bubbles
- Affordability of housing in the United KingdomAffordability of housing in the United KingdomThe affordability of housing in the United Kingdom deteriorated significantly from the late 1990s onwards, with house prices rising faster than earnings and the average age of first-time homebuyers increasing...
- Indian property bubbleIndian property bubbleThe origins of Indian Property Market Bubble can be traced to the interest rate reductions made by the NDA coalition government in the years following 2001. Home Loan Rates fell to a historical lows of 7.5% in early 2004. This prepared the basis for the increase in real estate property prices...
- Irish property bubbleIrish property bubbleThe property bubble in the Republic of Ireland began in 2000 and peaked in 2006, as with many other western European countries, with a combination of increased speculative construction and rapidly rising prices....
- Japanese asset price bubbleJapanese asset price bubbleThe was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices were greatly inflated. The bubble's collapse lasted for more than a decade with stock prices initially bottoming in 2003, although they would descend even further amidst the global crisis in 2008. The...
- Romanian property bubbleRomanian property bubbleAfter the relative calm of the decade of the 1990s, since 2002 Romania has experienced a dramatic increase in property prices. Between 2002-2007 the median price for an old communist-era apartment rose by a factor of 10 , from around €10,000 to circa €100,000...
- Spanish property bubble
- US housing bubble