Housing prices and policy dilemmas: a peculiarly Australian problem?

Abstract

House price inflation has a long tradition in Australia. By international standards the current housing boom is ‘world class’; Australia, along with Britain, heads the OECD league table for house price increases. This article first describes the boom in Australian house prices, distinguishing the differences across geographic and dwelling type sub‐markets. The drivers behind these changes are then discussed, ranging from short‐term factors like interest rate levels and investor behaviour to longer‐term factors like economic growth and demographic change. Institutional influences, notably tax regimes and land‐use planning regulations, are also addressed. The article then considers the tendentious but timely question—‘is Australia experiencing a speculative housing investment bubble and, if so, will it burst?’ The article goes on to consider what the consequences or costs might be, in terms of the broader issues of macroeconomic policy.

Keywords:

• bubble
• house prices
• housing policy

Notes

Correspondence Address: Mike Berry and Tony Dalton, Australian Housing and Urban Research Institute Centre, School of Social Science and Planning, RMIT University, GPO Box 2476V, Melbourne, Victoria 3001, Australia, Email: [email protected]; Email: [email protected]

Figure 3 and Table 1 draw on house sales data collected by the Real Estate Institute of Australia, as opposed to the ABS data presented earlier. Both sources—and a third, from the Commonwealth Bank of Australia and the Housing Industry Association—are based on regular surveys. Since they use different surveys, the resulting indices can diverge significantly in the short run. In the longer term, the ABS index tends to show a smaller rate of change than the other two since it takes more account of changes in the value composition of the sample (Reserve Bank of Australia, 2002, p. 1).

The size of the shifts in the supply curve has been exaggerated in order to demonstrate the main point.

Additional information

Notes on contributors

Mike Berry

Correspondence Address: Mike Berry and Tony Dalton, Australian Housing and Urban Research Institute Centre, School of Social Science and Planning, RMIT University, GPO Box 2476V, Melbourne, Victoria 3001, Australia, Email: [email protected]; Email: [email protected]