In the last few years there has been quite a buzz in the media about the rising of Australian house prices. All this time most people think that the movement of house prices in Australia, whether up or down is influenced by the factor of supply, and most of them think that the rising of Australian house prices in the last few years are simply due to the short of supply. In some particular cases, this might be true, but this is not entirely true and definitely cannot be used to describe the Australian house market as a whole.
The availability of finance seems like a more reasonable factor in this matter, or in other words it’s a matter of how much banks in Australia are willing to lend. Within the last decade we have seen the credit explosion in the financial sector in Australia, which has coincided with the huge increase in house prices. When a lot of banks are willing to lend more money, more people are willing to borrow in order to buy homes, even those who actually haven’t thought of buying homes are now have the capacity to be in the market due to the lending.
The truth of this theory can be proven by looking at the condition during the global financial crisis. At that time, most banks tightened their lending policy and they didn’t want to take even the smallest risk when it comes to giving loans of any kind, the result was Australian house prices quickly dropped. Learning from that condition, we know just how much the banks can influence property prices. When they stop giving loans or tightened their lending criteria, the demand will drop, which also decrease s property prices, on the other hand when they lend more, the demand will rise and that will increase the property prices as well.
Regarding the “undersupply” theory, it’s totally debatable. Even though Population growth in Australia is considered to be one of the highest in the world especially through immigration. But this immigration flow also brings up a new culture where people share accommodation with friends and family to lower costs, so actually currently there is a co-habitation culture and that makes low property supply doesn’t really matter. Besides, nowadays there is an increase of rental vacancy rates in many capital cities in Australia, and that is a very unlikely trend if the Australian property market really suffers from an undersupply.
Is Australian in a housing bubble?
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