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 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.
Read more about this topic: Australian Property Bubble
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