Savills What bubble trouble

Savills: What ‘bubble’ trouble?Enduring economic trends are behind recent housing price increases, and referring to the situation as a ‘bubble’ ignores the drivers to the detriment of solutions, according to one property researcher.Is Australia’s housing market really in a ‘bubble’ right now? Absolutely not, according to respected researcher and commentator Tony Crabb.Crabb, the national head of Research for Savills Australia, argues that long-term, deep trends are the cause of recent dwelling price increases in Australian capital city markets.He argues that, contrary to the views of market scaremongers, the simple fact is this: following seven years without significant value increases, dwelling prices in most capitals have increased because demand has outstripped supply.However, the drivers of the demand are macro-economic and long term. For instance, the composition and size of families has been changing since the 1960s, and since that time houses have been getting bigger and costlier to build.”In the 20 years from 1983 to 2003 the average size of a new house in Australia grew from 163 sqm to 228 sqm, an increase of 40 per cent. The larger the house, the more it costs,” Crabb says.More accessible tertiary education, higher wages and lower tax and interest rates combined to produce a population that earned more and chose to invest in housing, because it was the most tax-advantageous ‘home’ for their money.But planners and regulators must bear their share of the blame for the lack of housing supply in Australia’s cities.”Thoughtless planning by policy-makers has left us with a focus almost entirely on family housing. There are many culprits here,” Crabb says. “Local councils have democratised planning, so NIMBY-ism does not permit a diversity of housing choices in all neighbourhoods.”The state governments fail to index stamp duty, so people do not trade up or down in property through their life cycle.”The federal government sequesters the family home from the means test, encouraging retirees to age in place, effectively locking up family dwellings for up to 20 years beyond the incumbents’ reasonable use.”Crabb adds that population growth is the biggest driver of house prices. Melbourne and Sydney are adding 1000 people to their populations each week.”We can see that the contributions to the current state of the housing market are generally not those that create a bubble, but rather a range of factors together over a long period of time,” Crabb says. “Reform of house pricing in Australia will take a lot more than jawboning and bandying about the word ‘bubble’.”Removing foreign investors from the equation is ‘tinkering around the edges’ of a solution. Instead, Crabb argues a better fix would be to remove the planning and financial bottlenecks that restrict supply. Centralised planning would be the quickest, most effective way to jolt supply and relieve price pressure, he says.Read more of Savills’ research and analysis on the residential market.