House Prices In Australia Research Articles

Internal migration and house prices in Australia

ABSTRACT Australia is one of the most mobile countries in the world due to internal migration. This study provides the first evidence of the causal impact of internal migration inflow on house price changes across 237 statistical regions in Australia from 2014 to 2019. Employing a spatial correlation approach, the paper indicates that internal migration that amounts to 1% of the initial local area population is associated with a 0.52–0.71% increase in house prices in the three most populated states of Australia. Migration inflow has a significant positive effect on house price changes in metropolitan areas of Sydney and Melbourne rather than non-metropolitan regions.

House prices, housing wealth and financial well-being

The causal chain between house price variation and observable changes in economic behavior including consumption requires that individuals perceive the impact of house price movements on their household wealth and recognize the impact on their financial situation. In this paper we establish evidence for the first link in this causal chain by investigating the effect of house price variation on perceived financial well-being using longitudinal information on subjective financial satisfaction. Exploiting substantial variation in local house prices in Australia across time, we find that plausibly exogenous unanticipated increases in local house prices improve the perceived financial well-being of home owners. The impact is strongest for mortgage owners, suggesting a strong collateral effect. We also highlight important asymmetries in the effects of house price shocks on perceived financial well-being associated with both the direction of the house price shock and tenure status. Mortgage owners exhibit more significant changes in their financial well-being in response to positive house price shocks. Furthermore, we highlight a weaker wealth effect for individuals that are liquidity constrained suggesting that these constraints are important for understanding responses to housing wealth shocks.

Does immigration affect residential real estate prices? Evidence from Australia

PurposeThis study aims to investigate the effect of immigration on housing prices in Australia both at the national and regional levels.Design/methodology/approachData for eight Australian states on a quarterly basis from 2004–2017 is used. To study the possible dynamic and endogenous relationship between housing prices and immigration, a panel vector autoregressive error correction model (PVECM) is adopted.FindingsAnalysis of the results indicates that in the short run immigration positively and significantly affects housing prices, whereas in the long run no significant relationship was observed between the two variables. From the regional breakdown and analysis, it is discerned that in some states there is a significant and positive effect of immigration on residential real estate prices in the long run. Causality analysis confirms that the direction of causation is from immigration to housing prices.Practical implicationsThe study illustrates that immigration and interstate migration, as well as high salaries, have been causing a rise in housing demand and subsequently housing prices. To monitor exceedingly high housing prices, local authorities should be controlling migration and salary levels.Originality/valuePast research studies had highlighted the importance of native interstate migration in explaining the nexus between immigration – housing prices. In this study, it has been empirically verified how immigration has been affecting the locational decisions of natives and subsequently how this has been affecting housing prices.

Neighbourhood, school zoning and the housing market: Evidence from New South Wales

This paper investigates the impact of primary school zoning on housing prices in Australia. Using the combination of boundary and regression discontinuity design techniques, along with an index of school academic quality and comprehensive data on both schools and housing transactions in New South Wales we find that the price of houses located in high-performing side of primary school zone boundaries is, on average, about 2.5% to 3.6% higher than that of similar houses located in low-performing side of these boundaries. This finding provides not only an insight into the price elasticity of demand for high quality education, but also has important policy implications as it highlights the need to address the potential educational inequalities associated with school zoning in Australia.

Residential property in Australia: mismatched investment and rental demand

Housing prices in Australia have demonstrated strong growth in recent decades, and many argue housing supply is not keeping up with the demand. The Australian government purports to increase the private construction of new houses and availability of rental housing primarily through taxation offsets. However, inflated house prices are also at least partially explained by housing supply shortage. This work studies Australian residential property investors to understand their characteristics and role in contributing to the supply of rental housing. Using rich proprietary loan-level data on over 1.1 million mortgage applications during a period of stable policy and house price appreciation, we study the determining factors for accessing finance for the purpose of residential investment as opposed to owner-occupation. Our findings use historical data to present new evidence of the increasingly non-metropolitan location choice for real estate investment properties. This is a potential explanation for the shortage of suitable housing in metropolitan regions but may contribute to regional development.

Effects of rooftop solar on housing prices in Australia

Hedonic models of housing prices face the risk of omitted variable bias due to the challenge of controlling for all relevant property attributes. The level of household financial assets is a key but underexplored control that may help to account for some of these difficult‐to‐observe property characteristics. Using large Australian household surveys, we find that controlling for household financial assets reduces the observed effect of having solar photovoltaic panels on housing prices. The elasticity of estimated housing price with respect to solar capacity is 0.09 for households with solar panels. Controlling for financial assets may be of use in other studies seeking to estimate the effect of home additions on housing prices.

The Globalization of Local Housing Markets: Immigrants, the Motherland and Housing Prices in Australia

The impact of immigrants on housing prices and rents has been well documented in the literature. There has been less research, however, on other mechanisms by which global economic and financial developments may impact on local housing markets. We investigate whether the foreign-born—that is the stock of previous immigrants—act as a conduit for economic changes abroad to influence local housing markets. Examining disaggregated regions in Australia from 2006-16, we construct a measure of the average performance of the motherland economies of the foreign-born for each region. We find evidence that house prices and rental growth tend to rise when motherland economies are performing poorly. This effect is economically meaningful, robust and appears to represent a distinct channel from the immigration effect.

The role and significance of planning in the determination of house prices in Australia: Recent policy debates

On the world stage, Australian cities have been punching above their weight in global indexes of housing prices, sparking heated debates about the causes of and remedies for, sustained house price inflation. This paper examines the evidence base underpinning such debates, and the policy claims made by key commentators and stakeholders. With reference to the wider context of Australia’s housing market over a 20 year period, as well as an in depth analysis of a research paper by Australia’s central Reserve Bank, we show how economic theories commonly position land use planning as a primary driver of new supply constraints but overlook other explanations for housing market behavior. In doing so, we offer an alternative understanding of urban housing markets and land use planning interventions as a basis for more effective policy intervention in Australian and other world cities.

The impact of immigration on housing prices in Australia

AbstractIn recent years, Australia has experienced high rates of immigration. We investigate the effect that this has had on housing prices at the postcode level. The endogeneity of immigrant inflows is accounted for using the Bartik shift‐share approach. Using data from the censuses in 2006, 2011, and 2016, we find that an immigrant inflow of 1% of a postcode's population raises housing prices by around 0.9% per year. As a result, Australian housing prices would have been around 1.1% lower per annum had there been no immigration. The size of this effect is broadly consistent with that found for other countries. The effects of immigration on housing prices were larger in the more recent part of the period examined and strongest in the states of New South Wales and Victoria, and the cities of Melbourne and Adelaide. Chinese and Indian immigrant groups are shown to have a strong positive influence on prices.

Non-Residents and Capital Gains Tax in Australia

The evolution of capital gains taxation in Australia parallels that in Canada in many respects. Federal income taxes were adopted in both countries during the First World War, and in both jurisdictions the courts interpreted the term "income," the subject of taxation, using United Kingdom judicial concepts that excluded capital gains from the tax base. In the last quarter of the 20th century, both countries amended their income tax laws to capture capital gains, and in both countries concessional rates apply. Initially, the Australian capital gains tax regime had rules that paralleled those in Canada in respect of the application of capital gains tax measures to non-residents, and the list of assets that might generate a capital gains tax liability for non-residents was similar in both countries. Australia changed course just over a decade ago with a decision to limit the income tax liability of non-residents in respect of capital gains to gains on land and land-rich companies alone, albeit with an extended definition of land to capture directly related interests such as exploration and mining rights. Consequently, until this decade, reform of Australia's regime imposing capital gains tax on non-residents focused on the concept of source as a primary driver, with the categories of taxable assets being gradually reduced. However, after more than a decade of unprecedented increases in housing prices in Australia, reform has moved away from addressing source to integrity matters. In Australia, as in Canada, there has been considerable investment in property, particularly residential property, by non-residents in recent years, and the government has sought ways to enhance the enforcement and integrity of the capital gains tax rules applying to non-residents disposing of Australian real property. Since 2013, Australia has proposed three separate measures to ensure integrity within this regime: removal of a concessional rate, introduction of a withholding tax, and removal of the principal residence exemption for non-residents. This article considers the history and development of Australia's capital gains tax regime as it applies to non-residents and examines the recent shift in focus from what is captured in the capital gains source rules to integrity provisions adopted to achieve both compliance and geopolitical objectives.

LIBOR and interest rate spread: sensitivities of the Australian housing market

ABSTRACTThis paper analyses the margin between the Cash Rate Target and LIBOR, and its relationship with house price variation in Australia. The research spans 24 years utilising monthly data to analyse the relationship between Australian house price and LIBOR/CRT spreads. Data are drawn from several sources before the time series is sub-divided into splines forming different stages of the housing market cycle. Models are developed based upon differencing the data and employing ADF tests for stationarity and examination via an Autoregressive Distributed Lag approach and Error Correction Model based data series. Results show there are various macroeconomic, financial and lending short-run dynamics which impact on house prices. Cointegration is also evident, which shows the LIBOR rate to comprise both a shot-run and long-run relationship with house prices. The margin between the CRT and LIBOR is less significant and is only observed in the short-run. The various approaches clearly exhibit the dynamism inherent between the wider macroeconomic and financial environment, which serves to highlight that different drivers affect the housing market at differing magnitudes and at different times. Nonetheless, both the short-run and long-run findings show GDP and LIBOR to be proponents for understanding the sensitivity of house prices in Australia.

Will Population Ageing Cause a House Price Meltdown in Australia?

The life cycle hypothesis suggests that when the Baby Boomers retire, many are likely to sell their assets to finance their retirement, exerting downward pressure on house prices. This paper examines whether demographic transitions, particularly the increasing proportion of the population in the old age cohort due to the retirement of Baby Boomers, will precipitate a dramatic decline in real house prices in Australia. The study uses a structural vector autoregressive framework. This is an important improvement over the reduced-form regression strategies usually employed in the literature. Both the demographic and non-demographic variables used in the empirical analysis are treated as endogenous and reverse causality between the variables is taken into account. The population ageing dynamics are modelled using impulse response functions and, thus, an insight into the potential magnitude of demographic shocks, particularly retirement shocks, is obtained. A much longer time series from 1950 to 2014 is used in the empirical analysis. The findings reject the predictions that population ageing, or more specifically, changes in age structure particularly due to retiring Baby Boomers, will lead to pronounced downward pressure on real house price in Australia. The results suggest that macroeconomic shocks and house price specific shocks explain more of the variation in house prices than the shifts in the population age structure, suggesting that such factors could outweigh any effects of future demographic shifts on house prices. At present the principal residence is excluded in the means test calculation for the age pension. The rapidly increasing size of the retired population will impose an increasing fiscal burden due to age pension expenditure. The way in which housing is treated for age pension eligibility will affect choices on whether older households remain in current residence or face pressure on selling their houses to finance the retirement consumption. This will have an impact on releasing housing stock into the market, which is an important policy implication from this research.

Effects of house prices on health: New evidence from Australia

Recent house price variation has strongly affected households’ housing wealth and debt, yet the non-economic consequences of these changes in housing wealth are still poorly understood. Using a sample of 19,000 individuals from the Household, Income and Labour Dynamics in Australia Survey (HILDA) for 2001–2015, we examine the relationship between house price fluctuations and individual health by exploiting large exogenous changes in house prices in Australia. We find that an increase in local house prices is associated with a positive effect on the physical health of outright owners and a negative effect on the physical and mental health of renters. Improvements in physical health for outright owners can be partially attributed to health-related investments and behaviours such as a reduction in weight, an increase in physical exercise and an increase in time allocated to home production. These findings support the presence of a health-wealth gradient through the wealth mechanism distinct from the effects of local area amenities and macroeconomic conditions. Our findings highlight some of the often-overlooked social impacts – both positive and negative – of fluctuations in the housing market.

The Contribution of Foreign Real Estate Investment to Housing Price Growth in Australian Capital Cities

This paper models the effects of foreign investment in real estate on housing prices in Australia. We use a variety of panel data models that account for cross‐sectional heterogeneity across Australian cities and find that increases in investment are significant predictors of rises in the Australian Bureau of Statistics’ Residential Property Price Index. Our results are generally robust and suggest that increases in foreign investment account for between 20% and 30% of the rise in housing prices between 2004 and 2014 in Sydney and Melbourne. In other capital cities the effects appear to be negligible. Some policy implications of our findings are discussed.

The Inexorable Rise in House Prices in Australia since 1970: Unique or Not?

AbstractThe period since 1970 has seen a very significant rise in house prices and rents in real terms in Australia. The geographical variance in house prices in the United States over the same period provides an insight into the rising value attached to amenity and the impact of supply constraints in explaining the rise. Financial deregulation and low interest rates are the key factors that, after 1991, boosted prices but at the same time limited rent growth. These factors are a one‐off and not a guide to the future. The decline in home‐ownership rates requires a more nuanced debate.

House price cycles in Australia’s four largest capital cities

The aims of this paper are twofold. First, we propose a threshold cube equation, augmented with the optimal number of autoregressive terms, to model the likely future path of house prices in Australia’s four major capital cities. The proposed framework can be adopted to simulate house prices in other cities experiencing similar price cycles (spirals) such as London and Vancouver. Second, using a proprietary dataset not publicly available (1995m12–2015m10), we use the proposed model to simulate house prices in Brisbane, Melbourne, Perth and Sydney, which have been on a steep upward trajectory since 2013. To check the sensitivity and robustness of our results, we evaluate the model in terms of the out-of-sample accuracy for two separate 12-month periods. We find that the forecasting performance of the model appears to be reasonable. Then we use the model to provide the ex ante future path of house prices during the next twelve months (2015m11–2016m10). Although we do not seek to forecast all see-saw changes in property prices, based on the historical length of boom and bust cycles in the past, some interesting overall price paths are detected. It is observed that during the next year house prices in all capital cities will start plateauing with some likely moderate falls. This downward price adjustment is particularly more noticeable in Perth.

The First Home Buyer Grant and house prices in Australia

Australia’s First Home Buyer Grants (FHBG) was designed to assist first home buyers into the market through a range of measures, grants and assistance packages. From the year 2000 there has been a strong increase in house price resulting in house prices nearly doubling between 2000 and 2008, well above the CPI or normal investment growth rate. This paper sets out that the FHBG was a main driver of these increases and attempts to measure by how much. We have considered if the FHBG is a direct driver of increasing median house prices and an indirect driver through increased borrowing ability. Due to the combination of the FHBG, the ability to borrow more, and an inelastic supply, we have concluded that the FHBG did increase the median price of houses in Australian by approximately $57,321.

Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?*

A structural vector autoregression model is used to identify overvaluation in house prices in Australia from 2002 to 2008. An important feature is the development of a housing sector where long‐run restrictions are derived from theory to identify housing demand and supply shocks. The results show strong evidence of overvaluation in real house prices, reaching a peak of just over 15 per cent by the end of 2003. Factors driving overvaluation are housing demand shocks before 2006 and post‐2006 macroeconomic shocks. Wealth effects from equity markets are also important. The results suggest that monetary policy is not an important contributor to overvaluation of house prices.

Population Ageing and House Prices in Australia

Abstract This article assesses the effect of population ageing on housing consumption and house prices. Using two approaches, this article finds that the ageing of the population may cause average real house prices to be between 3 and 27 per cent lower than they otherwise would be over the period 2008–2050. The first approach is an econometric estimation of house prices for Australia over the period 1980–2008. The second approach is a simulation of a life cycle‐optimising model with representative overlapping generations.

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

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.