Australian House Prices Affordability: An International Comparison of the Determinants of House Price's Performance, 1980-2009

Abstract

A recent study comparing international housing affordability finds Australia has three of the five most unaffordable housing markets in the world. One reason for Australia’s ranking is that the house price bubble in Australia unlike elsewhere has not yet burst. Demographia believes it will burst eventually, but this is a controversial view in Australia. Many analysts claim Australia did not build as many houses during the boom as were built in other markets, and therefore we will not see the massive price declines that other countries have experienced. In this research we forward several reasons why Australia’s house prices are unlikely to succumb to the price falls experienced in the US, UK and Europe generally. Based on historical and current data the paper provides a comparative analysis of the determinants of house prices in Australia and the US, including an analysis of housing affordability. From the evidence presented, the factors, which played the most significant roles in creating the conditions for the US house bubble, were not evident for the Australian housing market. In fact, the growing demand push factors combined with the constrained supply factors in providing new housing stock in particular for the major cities of Melbourne and Sydney appear to have anything but abated.