The Australian property market comprises the trade of land and its permanent fixtures located within Australia. The market has shown steady growth of around 3% per annum since the 1970s. Since the 1990s, however, prices have risen by around 6% per annum. House prices in Australia receive considerable attention from the media and the Reserve Bank and some commentators have argued that there is an Australian property bubble.
Description
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Composition
In 2011 there were 8.6m households with an average household size of 2.6 persons per household. Freestanding houses have historically comprised most building approvals, but recent data shows a trend towards higher density housing such as townhouses and units. Turnover rates vary across market cycles, but typically average 6% per year.
Regional variations
The Australian property market is non-uniform, with high variation observed across the major cities and regional areas.
Sydney
In Sydney, as of March 2010, the Property Market's vacancy rate reached 0.53% signalling that the market is recovering, as these rates had reached 2% in August 2009. As of July 2015, the Property Market in Sydney has surged in the first Q of 2015, up 3.1%. Sydney's eastern and northern suburbs typically attract the highest prices.
Key issues
Affordability
In the late 2000s, housing prices in Australia, relative to average incomes, were among the highest in the world. As at 2011, house prices were on average six times average household income, compared to four times in 1990. This prompted speculation that the country was experiencing a real estate bubble, like many other countries.
Foreign investment has also been identified as a key driver of affordability issues, with recent years seeing particularly high capital inflows from Chinese investors.
Immigration to Australia
A number of economists, such as Macquarie Bank analyst Rory Robertson, assert that high immigration and the propensity of new arrivals to cluster in the capital cities is exacerbating the nation's housing affordability problem. According to Robertson, Federal Government policies that fuel demand for housing, such as the currently high levels of immigration, as well as capital gains tax discounts and subsidies to boost fertility, have had a greater impact on housing affordability than land release on urban fringes.
The Productivity Commission Inquiry Report No. 28 First Home Ownership (2004) also stated, in relation to housing, "that Growth in immigration since the mid-1990s has been an important contributor to underlying demand, particularly in Sydney and Melbourne." This has been exacerbated by Australian lenders relaxing credit guidelines for temporary residents, allowing them to buy a home with a 10 percent deposit.
The RBA in its submission to the same PC Report also stated "rapid growth in overseas visitors such as students may have boosted demand for rental housing". However, in question in the report was the statistical coverage of resident population. The "ABS population growth figures omit certain household formation groups â€" namely, overseas students and business migrants who do not continuously stay for 12 months in Australia." This statistical omission lead to the admission: "The Commission recognises that the ABS resident population estimates have limitations when used for assessing housing demand. Given the significant influx of foreigners coming to work or study in Australia in recent years, it seems highly likely that short-stay visitor movements may have added to the demand for housing. However, the Commissions are unaware of any research that quantifies the effects."
Some individuals and interest groups have also argued that immigration causes overburdened infrastructure.
Foreign investment in residential property
In December 2008, the federal government introduced legislation relaxing rules for foreign buyers of Australian property. According to FIRB (Foreign Investment Review Board) data released in August 2009, foreign investment in Australian real estate had increased by more than 30% year to date. One agent said that "overseas investors buy them to land bank, not to rent them out. The houses just sit vacant because they are after capital growth."
Negative gearing
Australian property investors often apply the practice of negative gearing. This occurs when the investor borrows money to fund the purchase of the property, and the income generated by the property is less than the cost of owning and managing the property including interest. The investor is expecting that capital gains will compensate for the shortfall. Negative gearing receives considerable media and political attention due to the perceived distortion it creates on residential property prices.
See also
- Australian property bubble
- Home ownership in Australia
- Negative gearing
External links
- Solicitor Sydney
References
