Most economies around the world are probably very jealous of Australia in the way they have managed not to be dragged down by the world recession over the last few years. Most Australians have jobs and the minerals in the country are abundant.
Now though, comes the news that the Australian house market is in danger of exploding big time.
Melbourne seems to be heading the problem as they have an extra capacity of houses.
“Contrary to the analyses of the vested interests, the data clearly establishes Australia is in the midst of the largest housing bubble on record. Policymakers are caught between a rock and a hard place, as implementing needed reforms will likely burst the bubble,” Mr David and Mr Soos state in a submission on behalf of real estate and financial services research house LF Economics.
Treasurer Joe Hockey sparked a national debate on house prices this month when he rejected the existence of a bubble, saying people would not be buying houses if they were unaffordable.
His statements directly conflicted with his departmental head John Fraser and some warnings by Reserve Bank of Australia governor Glenn Stevens.
But Mr David and Mr Soos believe even the most bearish officials underestimate the coming collapse that has been made worse by rampant lending of “colossal sums of private debt to speculators”.
Their analysis was greeted with scepticism by some market watchers. Domain Group economist Andrew Wilson said Australia does not have a history of cataclysmic price falls and there is little prospect of the sharply higher interest rates that have brought on previous price falls.
The sharpest decline occurred in Sydney in 2008 when the market fell 4.5 per cent in a year, he said.
In the year to April, NSW property investors have borrowed $64.2 billion to spurge on the residential property market, another all time record.
This comes as CoreLogic RP Data also released data on Friday showing rents are now rising at their slowest annual growth on record, caused by the surge in property investment. According to the ABC, “Bureau of Statistics figures show it is 20 years since rental growth has been this low nationally.”
The impact of Chinese investment is the subject of on-going studies at the University of Technology, Sydney (UTS). Dr Adrian Lee, a postdoctoral research fellow at UTS Business School, says Chinese nationals are only allowed to buy new, not established properties in Australia. But he questions whether Australia’s Foreign Investment Review Board “has adequately enforced the restrictions”.
Dr Lee believes the flow of money will increase.
“I think Australian property will continue to be favourable to China’s growing middle class as they perceive Australia as a great place to eventually live in for themselves and their families,” he says.