Skyrocketing prices: What is really to blame?

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Growth is good, but rapidly accelerating property prices can also hinder investor portfolio expansion.

This means that, with house prices nationally rising by nearly 10% and markets like Sydney and Melbourne recording skyrocketing prices, many investors are likely to be feeling frustrated.

It might be easy to blame foreign investors for their plight but, according to some heavyweight opinions, the real culprits are actually somewhat closer to home.

On Friday, a Reserve Bank spokesman told the Inquiry into Foreign Investment in Residential Real Estate that foreign investment has probably not had a significant impact on housing prices, particularly at the lower end of the market.

RBA assistant governor of economics Christopher Kent said the rise in prices primarily reflected increased housing demand from Australians – largely due to low interest rates.

While there was typically a lag in the provision of new housing supply in response to a rise in housing demand, several factors accentuated this lag.

These were:
  • A shortage of well-located land and geographical constraints in capital cities.
  • The complexity of the planning and approval process, which adds to the time and costs of new housing developments.
  • The concerns of existing residents about new development projects in their vicinity.
“More could be done to increase the responsiveness of housing supply to demand,” Kent said.

Meanwhile, the Property Council also questioned the idea that foreign investors are driving up property prices and preventing local buyers from entering the market.

In its recent submission to the inquiry, it asserted that foreign investment in housing amounted to only 4.6% of all residential purchases.

This meant there simply isn’t enough foreign investment to skew the residential market as a whole.

Rather than driving up prices, foreign investment actually plays a critical role in leveraging additional housing into the domestic housing market, the council stated.

It is really state and local government bureaucracy which is pushing up property prices, the council’s Andrew Mihno subsequently told media.

“The real enemy to affordability is bad planning systems, a lack of land supply and crippling taxes and charges.”

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  • Ian Jones says on 01/07/2014 07:29:57 PM

    Well based on realestate agents in Sydney I speak too, then this article is not really correct.
    Yes low interest rates are spurring up people to borrow, but also the foreign investors are throwing massive summs of cash into high interest accounts and using the interest payments to buy property and therefor its all logged as "Australian generated" income.

  • Ecoengine says on 16/07/2014 08:59:56 AM

    Our record rate of overseas migration isn't enough to keep the property bubble inflated, so foreign investors are invited to help out! House prices started to fall after the GFC, so K Rudd deliberately boosted immigration, and doubled and tripled the first home owners grant. There's nothing organic about unaffordable housing - it's due to a free-market economy for the benefit of corporations.

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