pricey homes look set to stay

Pricey homes look set to stay

* From: AAP
* December 16, 2010 5:40PM

AUSTRALIANS maybe wealthier, but they also appear to be paying over the odds for their homes.

Household net wealth rebounded by 8.0 per cent in the September quarter, or by $3,000 per person to $44,000, new Australian Bureau of Statistics data shows.

This is largely due to a jump in share prices, Commonwealth Securities economist Savanth Sebastian says, and follows an 8.7 per cent wealth slide in the three months to end-June.

This still left net financial wealth down 17.8 per cent from a peak in late 2007 and before the global financial crisis hit rock bottom.

"Australian households have plenty to cheer about with wealth levels repairing in the September quarter," Mr Sebastian said, adding he expects a further improvement in the December quarter.

A new analysis also suggests that if you owned the same house for the past 20 years, its price would have jumped 120 per cent.

However, the International Monetary Fund (IMF) staff analysis has found that Australian house prices are overvalued by as much as 10 per cent, but strong population growth and rising income will continue to underpin the housing market.

The analysis has found a link between episodes when Australia has a strong terms of trade - the relative performance of exports to imports - and rising house prices.

"The current historically high terms of trade are expected to be long lasting," the report's authors Patrizia Tumbarello and Shengzu Wong say.

"Strong population growth and high real income growth in the wake of record-high commodity prices this year will continue to support house prices."

The latest national accounts released earlier in December showed Australia's terms of trade soared to the highest level in 60 years.

But head of property research at ANZ Paul Braddick believes the report's estimate of a five to 10 per cent overvaluation, while an improvement on the IMF's earlier simplistic estimates, still leaves out a number of other factors driving house price movements.

He said factors such as shifts in capital gains tax, negative gearing and rental yields should also be in the mix.

"Conclusions drawn from restricted models therefore need to be treated with a degree of caution," Mr Braddick said.

The IMF staff report says prices were able to recover after the shock of the GFC through the the federal government's more generous first time home buyer grant and a fall in mortgage rates in 2008/09.

Population growth in Australia has also been higher than other advanced economies, mainly because of strong immigration, while an insufficient supply of housing is also placing ongoing pressure on prices.

"The increasing scarcity of land in main urban centres in Australia is an important factor," the reports authors say.

They say recommended reforms reported in Australia's Future Tax System - the so-called Henry tax review - to stamp duties and land taxes should reduce the current impediment to housing supply.

The Henry review says that stamp duties are a highly inefficient tax on land, while land tax could provide an alternative and more stable source of revenue for the states.

Such recommendations have so far not been taken up by the federal government, but will likely be discussed at next year's tax summit.