Property market warnings: are they credible?

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Warnings about a bubble, or a looming crisis, in Australia’s property markets simply won’t go away – but are they valid?
Just a few days ago, former Treasurer Peter Costello issued a warning of his own about the property market.
Costello, who was the country’s longest-serving Treasurer, said that when the property sector's rapid growth inevitably slows, there would be widespread hardship.
Housing prices have grown quickly because of a limited supply of land and the situation was exacerbated by state taxes imposed on the release and transfer of land.
But while the country’s strong population growth is likely to support the property market, real wages are falling and disposable incomes have peaked.
Further, once world economies normalised, interest rates would rise again.
“It could still be a good time for property if things revert to normal. But there could be a fair bit of hardship before we get there,” said Costello.
The Swiss-based Bank for International Settlements recently rated Australia’s housing market as the second most expensive market in the world in terms of price to income ratio, which it said could lead to a price correction in the future.
However, current Treasurer Joe Hockey has rejected the warnings of Costello and others and insisted that a property bubble is not forming in Australia.
He told media that rising prices were a reaction to lack of supply and the idea that households and investors were taking on too much debt to buy houses was wrong.
In his view, recent growth in new dwelling construction in Sydney, Melbourne and Brisbane should help to address widespread housing shortages.
It was lazy analysis on the part of overseas analysts to make claims about a housing bubble emerging in Australia, he said.
“Fundamentally, we don't have enough supply to meet demand. That doesn't suggest there's a bubble… There might be a price increase of some substance, but you'd expect the market to react and produce some more housing.”
Meanwhile, as Your Investment Property reported last week, the RBA also says the country’s property market is not in crisis.


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