Scott Picken, CEO of International Property Solutions (IPS) believes a paradigm shift is occurring: 8 years ago, people would only invest in property in their own neighbourhood. Now, investors are starting to seek the best investments globally. IPS was created 5 years ago to facilitate international investments and provide an end-to-end solution to ensure that investors can invest with confidence!

Sunday, May 3, 2009

An analysis of the Australian Property Market

By L.P. Shadow

Part 1: Why it really is ‘different here’

With both Residex and RPData statistics currently indicating that Australian house prices are on the rise again (or at least that they have stabilised, after a total peak to trough fall of only 3-4 per cent), now is a good time to review the state of the property market in Australia, and especially the important differences between Australia and some other countries that have experienced a more significant decline in property values.

The doom & gloom crowd frequently state that we are 'just like the USA' or 'just like Japan' or ‘just like the UK’ etc. They do this in order to convince each other that house prices in Australia must inevitably follow the same path. However, what they fail to recognise are the many significant points of difference between the housing markets in each country.

First of all, consider population growth. The Australian population is currently growing at 1.84 per cent per annum, while the UK growth rate is only 0.4 per cent per annum, less than a quarter of our growth rate. The USA growth rate is only 0.9 per cent (half of our growth rate), and finally the growth rate in Japan is negative. The Japanese population is actually in decline. Japan is a great example of a country where supply of housing really does exceed demand. Since Japan's population is shrinking, over time this must inevitably lead to an oversupply of housing.

Australia’s population expanded by a record amount last year, due to an increased birth rate and an influx of migrants. The population grew by 390,000 to 21.5 million. This 1.84 percent growth rate was the highest since 1970. Sixty percent of the increase was due to migration.

Even though the Rudd government has recently indicated that overseas migration will be cut by 18,500 people, this means that Australia’s growth rate will still be around 1.7 per cent, which is still one of the highest growth rates in the developed world (in fact, even higher than many developing countries).

Another important factor is the quality of our overseas migrants. Australia has always had quite a restrictive policy of encouraging 'skilled' migrants, while the UK has instead been bringing in a very large share of poorly educated and low paid migrants from Eastern Europe, who tend to send a large portion of their wages back home to family instead of spending it in the UK economy, unlike our own skilled migrants who contribute towards the Australian economy to a much greater extent and can better afford to buy/rent houses. Many of those UK migrants simply packed their bags and went home when the UK economy started to weaken.

In addition, Australia has never had the oversupply of housing that exists in the USA. The USA built far more new houses than required to meet their underlying demand, whereas in Australia the reverse occurred. We do not have enough dwellings to meet underlying demand. Australia does not have the massive oversupply of foreclosed dwellings that is the primary cause of downward pressure on US house prices. Rental vacancy rates in the USA are running at well over 10 per cent, compared to less than 2 per cent across most of Australia.

The recent Australian property boom, which ended in 2003, was characterised primarily by the exchange of existing stock, rather than the development of new stock. In other words, it was not a construction-led boom (unlike the recent boom in the USA). This means we now have a shortage of stock in many high-demand locations as we move into the next growth cycle during a period of record population growth, record low vacancy rates, and rising rents.

Another critical factor is interest rates. The UK and USA banks have generally retained a large slice of the official rate cuts for themselves, rather than passing it on to the consumer as mostly happened in Australia (375 of the first 425 basis points worth of cuts were passed on). Furthermore, the UK and USA only started slashing official rates after their house prices were falling sharply and their economies were in serious trouble. The RBA on the other hand has been much more proactive, cutting rates aggressively, ensuring that most of the rate cuts are passed on, and since they were starting from a higher official rate position to begin with, they have had relatively more ammo left in the rate cut gun as well (and even if the banks to not pass on much more from now on, their profits will be increasing encouraging more lending).

The chart below compares the reduction in official rates and mortgage rates across the UK, USA and Australia. It is clear that despite our official rate having fallen by the least amount (meaning we have much more scope for further official cuts), our fixed and variable mortgage rates have fallen by the greatest amount. The key difference here is that a much greater share of the cuts has been passed on to the borrower in Australia.

Source: RBA, Westpac

The UK and USA economic problems began well in advance of their housing market downturn, and their banks had much more significant exposures to the sub-prime assets that triggered the current crisis. Many large UK and USA lenders are heavily reliant on securitisation markets for funding (much more so than Australian banks). When those markets closed, these lenders no longer had access to funds. The Northern Rock collapse removed a very significant UK housing finance provider (with an estimated 10 per cent mortgage market share, and commonly offered 110-120 per cent LVRs). After the Northern Rock collapse, credit was severely tightened by all UK lenders, maximum LVRs were slashed, and finance was no longer made available to 'higher-risk' borrowers.

Lending standards in Australia have always been much stricter than in the UK and USA. Non-conforming loans (our equivalent to sub-prime) represented less than 1 per cent of all mortgages in Australia in mid 2007 according to the RBA, compared to 15 per cent in the USA. Low-doc loans (our equivalent to Alt-A) represent only 7 per cent of all mortgages in Australia, compared to 20 per cent in the USA (and Australian low-doc has much lower default rates).

With regular low-doc loans, even though the borrower is not required to prove income levels, they are required to contribute a large deposit, and possibly pay LMI. This is a key difference between low-doc loans and sub-prime/non-conforming loans - with low-doc loans, the borrower already has a large equity buffer in place.

Furthermore, the RBA did not make the US mistake of keeping interest rates too low for too long in the first half of this decade. This is why far fewer Australians were enticed into taking out mortgages that they would never be able to service when rates returned to normal levels. Also, mortgage lending in the USA is frequently ‘non-recourse’, meaning that in the event of default, the lender may repossess only the property against which the mortgage is secured, but may not make claim against other assets belonging to the defaulting borrower. As a result, homeowners in the USA are more likely to hand back the keys and walk away, which further exacerbates their oversupply of housing.

In the end, these significant differences in lending practices have meant that default rates on Australian loans have remained vastly lower than on US loans (according to the latest RBA data, the Australian 90 day mortgage default rate is just 0.48 per cent compared with the US (nearly 4 per cent) and UK (nearly 2.5 per cent)).

It is also important to consider the government debt position. Australia entered this global downturn from a much stronger position since we had a strong budget surplus and no public debt. We also have the Future Fund and the Infrastructure Fund, which together still contain around $80 billion that can be made available for further stimulus. On the other hand, governments in the UK and USA were saddled with mountains of debt to begin with.

Additionally, the UK (and especially London) economy is very much based around the financial services sector and is therefore more severely impacted by the current global financial crisis. The UK and US economies are in a much worse position than the Australian economy.

And finally, as the chart below demonstrates, the recent UK property boom was considerably larger than ours in the first place. In fact, the IMF has acknowledged that there is no evidence of any significant overvaluation of Australian house prices beyond what would result from the fundamental balance of supply and demand.


Part 2: What does the future hold for the Australian property market?

Nominal house prices are always increasing as inflation devalues the currency, and in recent times the money supply has been increasing at a much higher rate than CPI. The latest RBA figures indicate that the money supply (M3) is growing at 15 per cent year-on-year, which is very strong growth (although not as strong as it had been previously). Interestingly, although the rate of growth in some categories is still in decline, the rate of growth in owner occupied housing finance has started to accelerate. If the money supply is increasing at a faster rate than the increase in prices of consumable goods (as measured by CPI) then this excess money has to go somewhere, and it tends to go into asset prices.

Source: RBA

House prices in desirable locations such as major cities can and will continue to outstrip average incomes due to the following factors (note that I am not talking about house prices in all areas):

– Shortage of supply in desirable locations means that sought after properties tend to flow towards those with most wealth.
– Existing stock is passed down to children, which captures past property wealth for future generations to build upon.
– Natural population increase and immigration, without adequate supply-side response, increases demand for existing stock.
– Disposable household income has been rising faster than wages, and there is a natural tendency to direct this excess income towards housing.
In addition, there are many unique characteristics of the Australian property market that tend to suggest a positive outlook over the medium term:
– Interest rates falling to record lows (hence cash delivering very low returns).
– Investors need somewhere to park their cash, and are wary of equity and commercial property markets due to the global crash.
– Very high overseas immigration.
– Trend towards fewer persons per household (although this is elastic in the short-term and the Federal Housing Minister has noted that there are around 250,000 ‘overcrowded’ households).
– Already very high current pent-up demand for housing.
– Not enough new houses being built.
– Many properties are now cashflow positive.
– Cheaper to buy than rent in many suburbs.
– The falling Australian dollar has made Australian more affordable to foreign investors.
– Rapidly increasing rents encourage investors back to property.
– First Home Owners Grant has been boosted and will likely be extended in a modified form.
– Banks have agreed to mortgage payment holidays for the unemployed.
Furthermore, the Sydney market in particular demonstrates some additional positive characteristics:
– Geographic expansion constraints (Ocean / Mountains / National Park bordering Sydney).
– Resistance to high-density development.
– Prices set to rise after past 6 years of falling prices and stagnation.
– Real prices are 20 per cent below their previous peak level.
– Reversal of the past internal migration trend from NSW to other states.
– Very strong auction clearance rates throughout 2009.

The charts below illustrates the fact that house prices in Sydney are below trend and potentially due for an upwards correction as seen in recent 2009 data (note how the line goes flat in around 2003).

Source: Residex

It is also worth noting that the response to the Westpac Melbourne Institute survey question 'is it a good time to buy a house' has jumped again recently to the highest reading since late 2001. Clearly the many Australians are beginning to realise that this is a good time to buy.

Additionally, AFG recently announced that its March 2009 home loan application volumes (by number and value) were the highest on record.

Finally, probably the most positive sign for Australian property is the recent uptick in housing finance commitments after the sharp decline during 2008, which history suggests is often a precursor to an extended period of further growth. In all six of the previous six major housing finance downturn events over 34 years, the first uptick has been a precursor to future growth. We are now at number seven. This is a bullish signal for the property market as the chart below demonstrates.

Source ABS

So, does this mean that property prices in Australia will never crash? No, in my opinion there may be a crash sometime, but just not yet. Prices may crash if and when the fundamentals change. I believe a property crash could occur after the forthcoming boom. As the credit crunch eases, and house prices start rising strongly again, there is a real possibility that a construction-led boom will kick off in Australia. However, there also is a chance that we will make the same mistake as the US made - i.e. we will eventually build too many new houses (there are currently approx. 18.6 million empty houses in the USA). This oversupply would create a glut of property late next decade, just as the baby boomers start to die off, further increasing supply and reducing demand, and this is what may eventually trigger price falls. But it won't happen until after the next boom.

Part 3: Why the gloomers are wrong!

The doom and gloom crowd frequently make spurious assertions regarding the Australian property market. In particular they like to make up reasons why an imminent crash is inevitable. This article aims to address and correct their most common claims.

False claim number 1: ‘House prices will revert to historic price vs income trends’

The gloomers often claim that property prices have diverged from fundamentals and must revert to historical price vs income ratios. This argument is clearly nonsense. What they fail to recognise is that the fundamentals have changed, and therefore the trend has changed. House prices won’t revert to historical price vs income trends for the following reasons:

The RBA has shifted to inflation targeting model in the 1990s and there has been a permanent downward shift in both inflation expectations and interest rates (refer to Christopher Joye’s article in Business Spectator on this subject). The RBA and Joye have noted that this has resulted in a once-off increase in the house price to income ratio.

More women in the workforce means dual incomes going toward housing is now the norm.
Financial deregulation, product innovation and competition make finance available to a wider range of borrowers.

Lower interest rates on housing loans have improved debt serviceability.
New incentives such as negative gearing, capital gains tax advantages, SMSF can now invest directly in property etc.

Of course, along the way there will be property cycles, booms and busts, but there is no reason to believe that the house price to income ratio will revert back to the levels seen in the 1970s and 1980s.

False claim number 2: ‘There is no shortage of houses in Australia’

Another frequent doomsayer claim is that the critical housing shortage recognised by the RBA, media, major banks, government, HIA, real estate industry, and all property analysts and commentators is actually an illusion. They claim that Australia has a massive number of empty houses that will somehow flood the market at some point in the future when interest rates or unemployment levels get too high. This is of course rubbish – the percentage of empty houses in Australia has barely changed in 30 years as shown below.

Some gloomers even go so far as to suggest that many property ‘speculators’ are hoarding empty houses while claiming negative gearing deductions. This would of course be completely illegal, and in any case does not make sense from a business perspective, since the investor would be losing rental income while risking severe penalties if caught by the ATO.

Australia has always had empty houses, and an excess of bedrooms in occupied houses, however these empty houses are not necessarily available for sale or rent. And they are not necessarily located in places where people want to live. A house is marked empty if it is unoccupied on census night. Many people are on holiday, out with friends, travelling etc. on census night, so their houses are counted as ‘empty’. This does not mean that the house will shortly become available for rent or sale.
Remote coastal towns always have a large number of empty holiday homes and high vacancy rates, but that doesn't help all the people who work and need to live in Sydney or Brisbane. On census night, there may have been plenty of empty villas in Thredbo and empty houseboats on the Hawkesbury, but again, not much use to the majority of the population who live and work in our cities.

As for the empty bedrooms... well, Australians want empty bedrooms in their houses. We're used to them, and we're not going to start inviting people to share our houses and bedrooms unless forced to by extremely adverse conditions (eg, war).
High prices and low rental vacancy rates are a symptom of shortage. We see these symptoms across Australia.

False claim number 3: ‘I see very few homeless people in Australia. How can there be a shortage? Where is everybody living then?’

The number of persons per dwelling in Australia dropped from 2.97 in 1991 to 2.76 in 2001 and to 2.74 in 2006. So after falling considerably over a decade, this metric has basically flat-lined from 2001 (there is some evidence that it has ticked up a bit more recently, but this elasticity is limited). Australians are now bunching up in existing dwellings rather than continuing the trend of forming new households. Why? Because we don't have enough houses to allow people to continue spreading out at the rate they desire.

Construction is currently down and rents are rising strongly in all cities. The Australian population grew by 390,000 people or 1.84 per cent in the past year. This is the largest number added to the population ever.

We can't just keep bunching up into the existing housing stock forever. The government is beginning to recognise this, hence their plan to build 100,000 new 'affordable' houses. But that is a drop in the ocean - we need many more. They will leave that up to the private sector to build (i.e. property investors and private developers).

Unless we develop new stock, we cannot possibly hope to appropriately house the growing population. So where are all these people who contribute to the pent up underlying demand actually living right now? They are:

– Bunched up in existing houses.Sleeping on friends sofas.
– Living in caravan parks and campsites (caravan parks in Australia are overflowing).
– Staying with parents for longer then they desire.
– Hotels, motels, backpacker hostels, guest houses.
– Crisis shelter, homeless centres and public housing.
– A small number of people are living on the streets.

False claim number 4: ‘I have a lot of pent up demand for a Ferrari, but I can’t afford one so my pent up demand is irrelevant, just like pent up demand for housing is irrelevant.’

This is a very common misunderstanding from the gloomers. What they fail to understand is that a Ferrari is a highly discretionary luxury item, while a home is a basic necessity (in fact Rismark and the RBA have classified it as a ‘superior good’). You can't really compare them like this. If a person cannot afford a Ferrari then they have the option of buying a cheap second hand car, or a bicycle, or walking. On the other hand there is no real alternative to living in a house. Shelter is a basic need. If a person is priced out of a particular housing market then they will do one of the following:

– Move further out, to a less desirable suburb.
– Buy a smaller house or unit instead.
– Make use of a shared equity arrangement or partner with another buyer.
– Rent.
– Leave the country.

Unless they choose the last option, then their demand on the Australian property market still exists. This underlying pent up demand doesn't just disappear. Everybody needs to live in a house.

It would be fine to compare a Ferrari with a luxury waterfront mansion, or to compare ‘transport’ in general with ‘shelter’ in general. But to compare ‘Ferrari’ with ‘shelter’ is just ridiculous. One is a highly discretionary luxury item. The other is a basic necessity.

False claim number 5: ‘Australia’s debt to GDP ratio is at 160 per cent. This is unsustainable - the ratio can’t possibly get any higher and must collapse.’

Credit growing faster than GDP is not necessarily a problem and can occur for all sorts of normal reasons. GDP is income received each and every year, while credit is an expense that is only paid once. It makes more sense to either chart GDP against the interest on the debt, or to chart total debt against total assets as the RBA has often noted (refer to Guy Debelle’s speech).

GDP is not really comparable to total credit. If my income rises by $100 and my total debt rises by $110 then even at an interest rate of 10 per cent pa, I’m still ahead by $89 (100 - (0.1 x 110)), even though my total debt has increased at a faster rate than my income. The same analogy applies to Australia’s credit vs GDP ratio.

Although the interest on the total credit must be paid every year, much of this interest is owed to other Australians, so to some degree we are paying the interest to ourselves. From the perspective of the overall economy, debts are not just negative assets. They simply represent a pledge to transfer funds from one person to another at some future point in time. They are as much an asset to the lender as they are a liability to the borrower.

In short, Australia’s credit vs GDP ratio is not necessarily a problem. Many countries have a much higher credit vs GDP ratio than Australia. The ratio is over 300 per cent for some countries. There is no reason why our ratio can’t continue to grow. As Christopher Joye notes in his Business Spectator article, Australia’s credit outpaced GDP during the 1990s due to the massive reduction in the cost of debt. Here is an interesting comment from the RBA on Australia’s debt situation.
“Has the expansion of household credit run its course? Will it reverse? We cannot know the answer to these questions with any certainty, but my guess is that the democratisation of finance which has underpinned this rise in household debt probably has not yet run its course. In the past, the lack of access to credit had resulted in Australian household sector finances being very conservative. Even as recently as the 1960s, the overall gearing of the household sector (taking account of all household debt and all household assets) was only about 5 per cent – that is, households owned 95 per cent of their assets, including houses, outright. This meant that the household sector had significant untapped capacity to service debt and large unencumbered holdings of assets to use as collateral for borrowings. Financial institutions recognised this and found ways to allow households to utilise this capacity. The increase in debt in recent years has lifted the ratio of household debt to assets to 17½ per cent (Graph 6)3. I don’t think anybody knows what the sustainable level of gearing is for the household sector in aggregate, but given that there are still large sections of the household sector with no debt, it is likely to be higher than current levels.”

False claim number 6: ‘Many economists have said that property values in Australia will fall by 40 per cent’

The only public figure who is claiming that property prices will fall by 40 per cent is Steve Keen, an associate professor from a Western Sydney university. Mr Keen has not actually based this 40 per cent figure on any real data, but rather has suggested that because this is approximately how much prices fell in Japan. On that basis, and given Keen’s view that unemployment will rise to 15-30 per cent, 40 per cent sounds good for Australia too. Here are Keen’s words:

“Japan also had a bubble economy in the 1980s, and its house prices have since fallen 42 per cent in real terms, and more in nominal terms since consumer prices have fallen over the 90s and 00s courtesy of Japan's long-running Depression. That's the reason I give a 40 per cent figure for a price decline in the press: our bubble was larger than Japan's in general (though much smaller than Tokyo's), and a fall of that magnitude would seem a good ball park estimate even though it would take a greater fall to restore the median house price to median income ratio to 3, which is Demographia's estimate of the peak level for affordability.”

It seems strange to compare Australia to the Japan experience, when there are so many differences between the property markets in each country. It does not make sense to expect the same outcome from different inputs.

One key point of difference is that while Japan’s population is projected to fall by around 25-30 per cent over the next 40 years, Australia’s is forecast by the ABS to increase by more than 50 per cent.

The other notable identity who gained some notoriety in 2008 for his claim of a 40 per cent fall was an internet blogger known as Edward Karan. Karan asserted that property prices in Australia would fall by 40 per cent over two years, starting from the ‘tipping point’ of Q1 2008. With only 8 months to go until his deadline, and prices down only 3 per cent (and rising again), it is obvious why we no longer hear from Edward Karan in the media.

For prices to drop by 40 per cent we would need to see massive levels of forced sales. Unless you are a forced seller, why on earth would you sell for a 40 per cent loss? For prices to fall by 40 per cent there needs to be no buyers at 5 per cent down... no buyers at 10 per cent down... no buyers at 15 per cent down. However there are plenty of buyers ready to jump in right now (even before any significant falls) and even more would be ready to jump in at 10 per cent down. Most people simply want a house to live in and will buy when they can afford it. Many can afford it right now. Property investors are already seeing many cashflow positive opportunities due to the historically low interest rates. There is simply no mechanism by which prices can fall 40 per cent in the current environment.
If I live in a street with 200 houses, and even if two of those houses were forced sales to lucky buyers for a 40 per cent discount, while 10 others sold for a 5 per cent discount (because those vendors didn't need to sell, and the buyers were willing to buy at 5 per cent down), then my valuation would come in at a 5 per cent reduction. For median prices to fall by 40 per cent, then 40 per cent down sales need to become the norm, not the exception. This means massive levels of forced sales. This simply will not happen, especially with the government and major banks agreeing to payment holidays for the unemployed.

False claim number 7: ‘Australian house prices are the highest in the world’

This is another factually incorrect statement, generally based on the discredited Demographia survey. The Demographia survey has been thoroughly debunked due to its massive flaws. It uses a very basic measure of 'affordability' - i.e. median house price to median income. This is an extremely misleading tool. Demographia compares house price to income ratios across various countries, however there is no reason why house price to income ratios would even be consistent across different countries, because there are substantial differences between the housing markets in each country. The survey fails to consider the following factors:

– Disposable/discretionary income
– Employment rate
– General cost of living
– Interest rates
– Rental yield
– Availability of public housing
– Marginal tax rates
– Mortgage default rates (Australian defaults are way below UK and USA default rates)
– Tax incentives such as negative gearing, FHOG, CGT reductions
– Land/Block size
– Dwelling size and quality
– Proximity to transport and infrastructure
– Currency exchange rates
– Economic and political stability
– Home ownership rates
– Urbanisation (much higher in Australia than in US, UK or Japan)
– Population growth - Australia (1.84 per cent), compared to USA (0.9 per cent), UK (0.4 per cent) and Japan (negative)
– Demographics (it is ironic that a survey called Demographia ignores demographics!)

Of course, no survey is perfect and no survey can possibly hope to account for all these factors. Our best option is to examine as many different surveys as possible, each of which may address several of these factors, and this will provide a better general impression of comparative affordability in each country, rather than looking at just one survey in isolation.

Regarding the 'demographic' failings of the Demographia survey, take for example its assertion that a certain 'sea-change' town in Australia is particularly unaffordable. Demographia bases this on the median house price to medium income in that town. What they fail to consider is that the median income there is largely irrelevant, because much of the population are cashed-up retirees (no income) who have saved up for their whole lives and purchased a nice big beach house, often with very low borrowings. Sure, these beach houses may be unaffordable for a first home buyer who lives there and works in the local supermarket, but that's not the primary demographic driving prices that town. In reality, the Demographia survey is comparing apples with oranges.

Another key issue with Demographia is that it only compares Australia with five other countries, yet the gloomers proceed to claim that Australia is the 'most expensive country in the world'. The survey conveniently ignores all the many cities around the world with much higher house prices than Australia. For example Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore, Monaco. Here are some alternative studies:

World's Top 10 Priciest Cities To Own A Home
Sydney - Not in the top 10

GlobalProperty Most Expensive Cities 2008 (apartment price per sqm):
Sydney - Number 13

Mercer Most Expensive Cities (cost of living, including housing)
Sydney - Number 21

CityMayors Expensive Cities
Sydney - Number 24

Knight Frank Survey (prime residential property)
Sydney - Number 8

Overseas Property Mall Survey
Aneki (most expensive countries to live in)
Australia - Not shown in the top 20

Most expensive countries in the world
Australia - Not on the list

Most expensive rental markets
Australia - Not on the list

False claim number 8: ‘Australian house prices are unaffordable’

The majority of Australians are well ahead on their loan repayments. Less than 0.5 per cent of borrowers are 90 days in arrears on loan repayments. The RBA has demonstrated that 25-40 year olds today have more disposable income left over after buying a 30th percentile house than at any time in the past. Clearly the majority of Australians are not finding property unaffordable.

False claim number 9: ‘Australian house prices will crash when unemployment rises’

The unemployment rate has been at historic lows and could not realistically do anything other than rise. Obviously there will be job losses across Australia over the medium term, however house prices have boomed through much higher unemployment levels in previous years. The people most impacted by a rise in unemployment tend to be those who do not own a home anyway, and those who do own a home may be covered by the mortgage payment holiday recently announced by the government and major banks. Christopher Joye has offered an excellent analysis of what happened to house prices in the 1991 recession when the unemployment rate rose from 5.6 per cent to 11 per cent…They actually increased!

False claim number 10: ‘Nigel Stapledon’s data shows that real house prices in Australia were flat thoughout the 1800s and early to mid 1900s’

Stapledon's work has been largely discredited. Nobody was actually collecting Australian median house price statistics in the 1800s and early 1900s. Stapledon’s methodology for collecting the statistics is described in his thesis.
Stapledon collected the data by visiting the library and reading one old Sydney newspaper for one day of each year from the 1800s. Then he looked at the advertised price of properties for sale in that paper. Then he extrapolated this out to create an Australia-wide house price index. He based the whole thing on a handful of advertised sale prices in one newspaper from one city on one day of each year, and somehow arrived at a house price index for Australia. He preformed no compositional adjustment and failed to recognise that one city in Australia may be booming while another is stagnant. In addition, Stapledon's measure of inflation in the 1800s bears no semblance to anything we would call CPI today, never mind the fact that houses were purchased using a completely different currency in the 1800s. Stapledon's data is meaningless when analysed critically.

False claim number 11: ‘House prices in Sydney have peaked and cannot possibly get any higher in real terms’

Five years ago, Sydney house prices were 20 per cent higher in real terms. There is no reason why they cannot get that high again or higher. There is no known limit to house prices. Prices in cities such as Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore and Monaco are already much higher than prices in Sydney.

False claim number 12: ‘No subprime in Australia? Ha! I saw an 18 year old on Today Tonight with no job, seven kids and twelve investment properties’

Of course there are isolated instances where lenders have provided finance to people who are unlikely to be able to service their loans over the long term. But these are exceptions. As a rule, Australian lenders have taken far fewer risks than their US and UK counterparts.

False claim number 13: ‘Fundamental supply and demand, population growth etc. is irrelevant. Availability of credit is the only factor responsible for house price growth.’

In 2007, house prices in Melbourne rose by over 20 per cent while prices in Sydney rose by only 8 per cent. Did Melbourne have twice the amount of credit available? No. Prices were driven by supply and demand, not availability of credit. Credit is equally available throughout Australia, but house prices do not rise by equal amounts in each city.

False claim number 14: ‘Interest rates were cut in the UK and USA. It didn’t save their markets and it won’t save the Australian market.’

The UK and US did not start to slash their official rates until after house prices were already falling sharply, and in any case the official rate cuts were generally not passed on to the borrowers to the same extent as they were in Australia.

False claim number 15: ‘The UK and USA had high population growth. It didn’t save their markets and it won’t save the Australian market.’

Annual population growth in the UK is actually very low at 0.4 per cent. The figure is 0.9 per cent for the USA. This is much lower than the Australian growth rate of 1.84 per cent.

Go to for more information and opportunities in Australia.

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