CommSec's Craig James has been relentlessly right about Australia's housing market, which contrasts rather strikingly with his critics on the housing loonie fringe (when they write about housing, senior journos often complain to me about the nutters that seem to dwell in the shadows of this most emotive topic). In any event, James has an effective little piece on the atmospherics of housing right now:
"There is an old adage in economics – there are lies, damned lies and statistics. And when it comes to the issue of housing valuations and affordability, there is a lot of data that can be categorised in the two former terms and much less in the latter.
As we go across the country we are amazed at the number of people concerned that our home prices are overvalued. Magazines like The Economist must take some of the blame, together with web sites like Demographia and even some industry groups like the Housing Industry Association.
Home prices in Australia are determined by demand and supply. In recent years demand has been strong, driven by the biggest in-bound migration in history. But in some parts of the country, supply – new dwelling construction – has not kept pace. In large part this has been in NSW as well as Queensland. In other parts of the country, governments have increased land supply, reduced barriers for developers and rezoned land for housing. And as a result dwelling starts are running above long-term averages.
The Reserve Bank Governor was asked a question on Australian home prices when he delivered a speech in London on March 10. The comments weren’t well reported, but he highlighted the fact that home prices aren’t rising strongly at present, that arrears rates on mortgages are low, gearing isn’t high and that, overall, home prices “are probably not top of my list of worries.”
However Glenn Stevens did say something else: “But I think – the other thing I’ll say is that it’s quite often quoted very high ratios of price to income for Australia, but if you get the broadest measures, a country-wide price and a country-wide measure of income, the ratio is about 4 ½ and it hasn’t moved much either way for 10 years. And that is higher than it used to be, but it’s actually not exceptional by a global standard as far as I can see." What he was quoting here was the analysis by Rismark International and RP Data on housing affordability. To measure home affordability you need to compare all incomes across Australia with all home prices across Australia – city and regional. Unfortunately a raft of industry bodies don’t do that and it produces spurious outcomes.
The bottom-line is that Australian home prices aren’t so extraordinary after all. Once foreign investors start focussing on the facts rather than fiction then perhaps a few more dollars will start flowing Down Under. Because it is a concern abroad, and it’s not being helped by misinformation."
