Constant Rise of Australian Housing Market

There has been plentiful debate over Australian housing market in the past few years. The primary reason behind all this discussion is the continuous rise of property value in this market. Experts are divided into two groups on this matter. One group says that this constant rise is creating a property bubble which could explode anytime and could wreak havoc on the Australian economy. On the other hand, some experts think that it is not a property bubble because the prices tend to increase with time due to a continuous growth in income.

Reserve Bank of Australia is also aware of this risk and in their recent meeting they’ve admitted that the commodity prices will continue to rise, but there is also a risk associated with this elevation. Australian Housing Market is attracting many foreign investors due to low-interest rates, high rents, rising cost of living and many other beneficial factors. While this market is highly profitable for investors, it is not in any way comfortable for buyers as they have to deal with higher prices and larger than expected budget upsets.

House prices in Sydney have increased more than 60% in the last five years. There are various reasons why Australian Housing Market is on the rise despite plenty of land. A big reason is that despite having a huge part of the land, the population of Australia is congested in a few major cities as five major cities of Australia accommodate more than 55% of the total population. That is why Australia is one of the most urbanized countries in the world. This congested population is a big reason why property prices are on the rise.

Australian suburbs are not much developed. Due to the poor quality of life and fewer facilities on the outskirts, Australians prefer to live in the big cities and tend to spend more on housing inside those cities. This trend trumps the scale and prices continue to rise.

Also, getting the land for construction purposes is a long and tiring process as after the land is approved for construction, there are many requirements which the investors and engineers have to fill before starting anything. This lengthy process, along with limited land availability makes its impact on the prices as investors want to make up for the lost time.

According to data analysis from Word Bank, GDP of Australia in 2015 was $47.417Trillion which indicated the high income of Australian resident. Due to these high incomes, Australians are not afraid to spend big on their housing. According to a statistic from IMF, Australia is number 8th on the list of countries with higher house price-to-income ratio. So investors and sellers are not much concerned about stabilizing the market as buyers are ready to spend any amount of money without hesitation.

The cost of building materials is also high in Australia as there is not much competition in the construction industry. There are a few building contractors and construction material providers who are well aware of how to deal with complicated permit processes and regulation. Maybe more competition can drive the construction industry to lower their prices. Some industry experts have found a solution to this problem in the form of prefab or kit homes which can lower the costs as good as 10%. Considering the overpriced housing market of Australia, even 10% can save investors or buyers a decent amount of money.

Australia’s tax policy encourages individual investors to invest in the housing market which is also a reason for a constant increase in housing market value.

Despite a risk warning from Reserve Bank of Australia (RBA), individual investors and companies are not worried about it yet.