Dear Reader, I have been issuing stern warnings about how Australia’s house prices are too high and must correct soon. I cannot say when the market will turn, but rabbit on that IT MUST! IT MUST! I try your patience.
Other Cassandras have come to the same over-priced conclusion. Last week, The Economist added its name to the list of doubters.
The magazine regularly collates and publishes a survey of house prices for twenty leading economies. They measure prices against rents, which sees home ownership as a business proposition, and highlights the ‘opportunity cost’ of owning your own home.
Guess what? We won! We won! Hurrah!
Australia has the most overpriced houses in the advanced world.
The Economist has no money in the game, no preferred position on where house prices should be. But they do have a keen eye for economic inefficiency and waste. And that we have in spades.
Their table means housing swallows more of worker incomes in Australians than anywhere else. We grind harder and take longer to pay off our (after-tax) mortgages. We live our working lives 90 days from bankruptcy – the inevitable consequence of not meeting that towering payment. We drive old cars, we eat poor food, we go without.
A housing bubble bursts when aspiring homeowners go on strike. Sales stop. The speculators holding supply off the market to capture capital gains lose their reason for holding. They sell. They all sell.
Next time you are in the inner suburbs of Melbourne, look around. I defy you to find a building put up between 1890 and 1910. Marvellous Melbourne had a boom and bubble that burst in 1889. It took twenty years for demand to catch up with that monstrous over-supply.
This did not need to happen. Our failure to slow property prices – with the fairest tax in the book,
Land Tax – has condemned us to re-live in full the Land Boom of 1889. Will we ever learn?