Alan Kohler wrote an interesting article in The Australian yesterday indicating that Australian housing is not a bubble, since rising values are underpinned by a shortage of homes.
He goes on to say:
INVESTING in property is a no-brainer at the moment. Prices have bottomed, auction clearance rates are on fire, especially in Sydney, and you can get a fixed rate mortgage for 4.8 per cent with 100 per cent gearing, 70 per cent in your super fund.
And the experts are now saying there’ll be another housing bubble. What could be better?…
The main problem with houses in Australia is that we never build enough of them, and the main problem with the Australian economy is not housing — it’s that it’s begun a transition from resource investment-led growth to . . . well, hopefully something else.
In the US between 2002 and 2007 low interest rates led to a boom in both house prices and house building. They ended up with a glut of houses and prices collapsed: you could famously buy a house for the price of a second-hand car.
In Australia over the same period there was a house price boom and that’s it — no glut. In fact there has been a consistent shortage of housing in this country right through the boom and bust of at least 100,000 per annum. As a result, prices didn’t fall much and have started rising earlier than in the US…
So Australia has a housing supply-side problem that means the definition of a price bubble is distorted. Bubbles only occur when supply exceeds demand. Just because a price rises a lot, that doesn’t mean it’s a bubble if there’s a shortage.