“Hysteria” about Australian housing being overvalued is spooking institutional investors from investing in much needed new housing, says Rismark economist Christopher Joye.

Joye says contrary to what’s being said by some in the media, housing in Australia is not overvalued.

Delivering a presentation titled “Australia’s Broken Housing Model” at the recent HIA Housing Summit which highlighted a serious undersupply of new homes to meet population growth, he said current housing valuations could be explained by market fundamentals with “dire predictions never remotely coming to pass”.

Joye pointed out that  peak-to-trough fall in housing values during the GFC were less than 5% and provided the following graph to show historical valuations of property.

“Since 2003 house prices have tracked disposable incomes…as an asset-class, housing has been a very safe store of wealth,” said Joye.

He said the housing market had significantly outperformed equities and bonds and the current market cycle should be investment-friendly.

“We should be seeing a surge in new supply,” said Joye, but instead “institutional capital has certainly been ‘spooked’ by housing hysteria”.

Joye highlighted that Australia has a population planning crisis and equally a serious housing/infrastructure crisis.

“Australia needs to build seven million new homes in next 37 years to accommodate 13.7 million extra people by 2050.

“This equates to around 200,000 new homes per year, but since 2000 only 156,000 new dwellings have been approved on average per annum.”

To address this chronic undersupply of new homes, Joye focused on property taxes.

“Housing is one of the most heavily taxed sectors of the Australian economy, both in absolute and relative terms,” he said, contributing 12% of total govt tax revenue and 45% of total state/local govt revenue.

New housing, he said adds 1.2% of value to the economy; but accounts for 2.8% of total government tax revenues.

According to Joye, tax reform could drive a 30% to 40% affordability gain.

“We need to work out how to more equitably redistribute the national tax/infrastructure burden,” he says, pointing to guidance in the Henry Review including:

  • Reform (land) taxes that discourage institutional capital
  • Replace inefficient transaction taxes with immobile taxes
  • Relax zoning restrictions/allow higher densities
  • Speed up approval decisions through State govt direction
  • Overcomes NIMBY (not in my bank yard) conflicts that plague councils

Furthermore, he said an obvious savings would be to convert first-home owner grant into an interest-free loan due on sale, which would save  around $1 billion per annum.


We are frequently asked by investors about the property market. In our last Investment News, we reported that dire predictions of the market’s imminent collapse had been shown to be wrong. As a result, one prophet of gloom, Steven Keen, now has to walk from Canberra to Mt Kosciusko wearing a t-shirt proclaiming his error.

So what has been happening in property in 2009?

The overseas picture

With the onset of the Global Financial Crisis, some property markets have experienced a significant downturn. The problems in the US are well documented and are likely to be ongoing, as the entire nation enters a sustained period of enforced saving.

The UK has also had a difficult time, with house prices recently posting their first quarterly increase since the third quarter of 2007. Closer to home, New Zealand is still down on its peak in 2007, although there are signs of consolidation and recovery.

Property in Australia through 2009

The experience in Australia has been markedly different. In 2008, the market reduced by 3% ‘peak to trough’ between February and December. However, by March 2009 it was becoming clear that this softening was limited both in scope and duration. At this time, Anthony Richards, the Head of the Economic Analysis Department of the Reserve Bank of Australia, noted that:

1. the weakness in housing prices was mainly at the higher end of the market; and
2. preliminary data was already showing a significant pick-up in the market.

Although we have obviously not yet completed the final quarter of 2009, it seems clear that Richards’ early assessment was accurate. According to RP Data-Rismark, by the end of the third quarter Australian house prices had risen by approximately 8%.

Of course, not all regions in Australia were equal. Darwin experienced 6.3% growth in the third quarter alone and Melbourne and Sydney easily exceeded the national average. However, other regions, such as Brisbane, Perth and Adelaide, have been less buoyant, despite having provided the best overall results in recent years.

Property performance and investment

There is no doubt that many who have ridden the recent roller coaster on equities markets would be looking enviously at the stability of the Australian property markets. But investors should always recall that the property market does not rise and fall uniformly. All investment, including property investment, involves risk.

Posted by LaTrobe Financial on 26/11/09

Followers of the financial press will by now have heard that doomsday economist Steve Keen has lost his high-profile bet with Macquarie Group economist, Rory Robertson.

Keen rose to national attention in 2008 after predicting that housing prices in Australia were on the verge of a collapse. Unsurprisingly, the tabloid media leapt onto the sensational story, generally failing to mention that Keen’s views were not shared by any other mainstream economist.

Rory Robertson was himself quite pessimistic about Australia’s economic outlook at the outset of the Global Financial Crisis. However, after a public email debate on the Australian housing market, Robertson challenged Keen to a bet on Keen’s views that housing prices would collapse by the end of 2009.

Keen has now been forced to concede defeat, following the release last week of data showing that house prices had increased by 6.2% in the year ending 30 September 2009 and were at a new peak.

Keen will have to make a 200km trek from Canberra to the top of Australia’s highest mountain, Mt Kosciuszko wearing a t-shirt saying “I was hopelessly wrong on house prices! Ask me how.”

The Business Spectator’s Christopher Joye wrote that Robertson had delivered a public good by holding “extreme views to account“. Joye was also critical of the print and electronic media, who had reported Keen’s views without mentioning that they were not shared by any other recognised authority in Australia. Joye wrote that Keen’s “dire prognostications” were simply “manna from heaven for journalists looking to shock their audiences.

Since the win, Robertson has been enjoying his victory. He reiterated his confidence in the fundamentals of the property market by saying:

“For fun, if Australian house prices ever fall by 40 per cent from any peak in my lifetime, I will follow in Dr Keen’s footsteps. Similarly, if Dr Keen proves the existence of the Loch Ness Monster, I will take the walk.”

One thing that we can learn from all of this is to be wary of relying on market predictions that we encounter in the tabloid media. Anyone who had sold a property in reliance on Keen’s predictions could have suffered significant losses.

Further, all of the levity surrounding the bet skirts the issue of what actually has been happening with Australian house prices since the beginning of the Global Financial Crisis. Certainly, the data shows that the market ‘cooled’ by 3.8% from its peak in February 2008 to its trough in December 2008. But the results for 2009 are clear – despite (or perhaps because of) the uncertainties surrounding the world economy, Australian house prices continue to grow robustly.

Posted by La Trobe Financial 12 November 2009.