It’s no secret that property prices in Australian capital cities have gone through the roof.
So will houses ever be affordable again?
Five years ago, a one-bedroom apartment in Sydney would set you back about $300,000. Today? You’d be looking at more than double that — with a median price of about $610,000, according to realestate.com.au.
So what’s going on? And why do people keep blaming a “housing bubble”? (Also, what even IS a housing bubble? And while we’re at it, why do experts keep talking about whether it will “pop”?)
What is a ‘housing bubble’, and are we in one?
A housing bubble is a period of seriously high house price growth, followed by a price drop back to or lower than the point where the growth started.
It’s actually very hard to know if a bubble exists until it “pops” — because if no fall eventuates, then by definition it’s not a bubble. (The rising property prices might have just been due to basic supply and demand, instead.)
A few indicators show a bubble can currently be seen in Melbourne and Sydney right now: low interest rates, more investors in the market and a sharp rise in house prices, according to news.com.au.
But there’s actually no consensus on whether Sydney and Melbourne are in a bubble. In fact, social demographer Bernard Salt believes investors shouldn’t buy into the hype at all.
“I am not convinced that there is a housing bubble,” he tells Mamamia. “I think that Sydney house prices were depressed for many years and I think in some respects, this is just catch-up.”
What’s causing these high property prices?
Urban Geographer at the University of Melbourne Dr Kate Shaw tells Mamamia there’s no simple answer. But she says one factor is local and overseas investors buying into the Australian housing market “not for places to live, but properties to trade.”
Many local investors, encouraged by tax concessions like negative gearing, are buying properties as investments rather than personal dwellings, for example.
“The upshot of all this is that there is effectively an infinite level of demand for housing in our major cities,” she says. “That keeps pushing prices up.”
Mr Salt says strong levels of population growth in both Melbourne and Sydney are also driving up property prices.
“Sydney is a global city, like London, New York, Paris, and as it is drawn further into the role of a global city… it attracts a global workforce with a capacity to pay global prices,” he says.
“Melbourne is similarly a global city… I think that the current price push simply reflects the greater internationalisation of those markets.”
Will the housing bubble ‘pop’ soon?
“Probably not, given the high level of demand,” Dr Shaw says.
While an oversupply in any part of the housing market (for example, too many high-rise apartments) might stabilise prices for a bit, she predicts property prices in Australia will remain strong “unless there’s a huge credit crash”.
Plus, a significant drop in prices is unlikely as long as overseas investors keep buying here, she says.