The Australian housing market has always been a prosperous one, with prices soaring even in times of recession and political turmoil. According to The Economist, the Australian housing market is more overvalued than the US housing market was at its peak. Property rates in Australia are said to be 30-40% higher than average property rates worldwide. There are several factors that contribute to this trend. Changes in government policies and interest rates play a major role in determining property rates in Australia, according to leading property appraisers.
This has made buying a home increasingly out of reach for many Australians, with prices almost tripling in the last 20 years. Rising house prices and loans can lead to difficulties in meeting payments. However, this does not necessarily mean that prices will fall unless there is a trigger such as rising interest rates, banks making it harder to obtain a mortgage loan, or an increase in unemployment. The average Australian household saves 15% of its annual gross income, which means it would take almost 11 years to save a 20% deposit on a property. The biggest problem for housing affordability is the chronic undersupply of housing relative to the growing population. This is partly due to government policies and regulations.
Prices have risen between the 1990s and the 2000s due to an increase in general household income, but with a rather low graph of the increase. Australia's largest city, Sydney, now ranks second after Hong Kong as the world's least affordable city to buy a home according to the latest Demography International Housing Affordability Survey. Prices would also depend on the supply of new housing, as the construction boom struggles with shortages of materials and labor. Negative gearing has been a feature of Australia's tax system for some time now, before housing affordability became a real problem. Interest rates have also played an important role in housing affordability, but the RBA is not to blame for rising house prices according to PropTrack economist Angus Moore. Housing affordability will continue to be a challenge this year, but it will be more difficult for some than others. The housing market is very complex and there are many factors that influence affordability such as land liberation, fiscal policy, government incentives, banking regulation, rules for foreign investors, immigration, employment, wage growth and inflation. Rising residential housing costs can lead to excessive lending to the residential housing sector at the expense of businesses.
In the late 2000s, house prices in Australia were at high levels similar to those in many comparable countries, prompting speculation that Australia was experiencing a housing bubble like other comparable countries.