comparing aus house prices to other countries

taken from Business spectator...


Shows how far off the mark those are that try to compare housing prices with other countries...


A few things to ponder...


Relative population growth rates (very high in Australia, but much lower in the US (projected to be less than half Australia’s rate) and UK (currently less than half Australia’s rate) and negative in Japan);

– Mortgage default rates — the 90 day default rate on Australian home loans is about 15 and 30 per cent of the level of equivalent default rates on US and UK loans despite historically higher interest rates;

– Tax treatment of housing (in the US, for example, capital gains tax is levied on owner-occupied housing while mortgage interest repayments are tax deductible; neither applies to Australia).

– Size of their public housing markets (the public housing market share in the UK is far larger than Australia, which in turn has a much bigger private rental market).

– Rates of home ownership (54 per cent in the Netherlands, 42 per cent in Germany, and 35 per cent in Switzerland, but about 70 per cent in Australia).

– Responsiveness of housing supply to changes in demand (low in very supply-constrained countries such as Australia, but higher in many countries such as the US, which has had a problem of excess supply).

– Urbanisation or the share of their population living in their largest cities as measured by the so-called “Zipf curve” (very high in Australia but considerably lower in the US, UK, Russia, Japan, India, Germany and China).

For a final word on both the current state of affordability in Australia and the relative valuation of our housing market, I will defer to the World Bank and the RBA.

In its October 2008 World Economic Outlook, the World Bank concluded: “As noted in the 2008 IMF staff report for Australia, if some country-specific factors, particularly the impact of long-term migration on housing demand, are taken into account, the results do not produce evidence of a significant overvaluation of [Australian] house prices.”