Sunday 22 Feb 2015
Over the past 15 years or so there have been many articles about an apparent "property bubble" in Australia. Some have made very valid points, others have been pure Mary Poppins stuff.
There has been further debate this week about the role of credit in asset price inflation which cited declining populations (within towns which clearly aren't actually declining) and that most tenuous of housing market measurements, the "growth" in median prices at the suburb level.
If you were to take a moment to access a subscription sales database and track any actual property resales it would immediately become evident that typically "price growth" in small towns is merely a shift in the sales mix derived from a tiny handful of transactions.
That said, I do tend to agree that many of Australia's smaller regional cities and towns have property markets which are built upon flimsy foundations, as we will likely discover in the next couple of years as the mining construction boom turns into a capex bust.
ALL LAND IS NOT CREATE EQUAL
Nonetheless the behaviour of housing markets in small towns tells us nothing useful about likely trends in large and growing capital cities.
As I looked at in more detail here, previously the notion that land prices were going to deflate in Sydney was always flawed, since the incumbent system allows landbankers to drip-feed land onto the market at such a leisurely pace.
Further, where the ratio of new stock to existing stock is low, the impact of new stock on the price of existing dwelling prices is diminished.
For all that, despite what is often implied by commentary, dwelling prices have not simply kept rising inexorably in Australia.
In Sydney, for example, dwelling prices declined in 2004, 2005, 2008 and from the middle of 2010 to the middle of 2012 - three distinct downturn periods in the past decade.
But with Greater Sydney's population expected by the latest projections to explode from around 4.6 million today to approximately 8 to 9 million by around 2060, it has always seemed very likely that land values were heading higher over time.