(Bloomberg) -- Soaring home prices in Australia’s biggest cities are driven by strong demand and a lack of supply, rather than indicating a “bubble,” according to HSBC chief economist Paul Bloxham.
“At a national level, a key reason for rising housing prices has been housing under-supply,” Bloxham wrote in a research note on Thursday. “This also suggests that a significant fall in Australian housing prices, as occurred in the U.S. and Spain during the global financial crisis, is unlikely.”
Five years of red-hot growth have left prices in Sydney and Melbourne up 80% and 60% since mid-2012, fueling bubble concerns. In June, Moody’s Investors Service cut the long-term credit ratings of the major banks, saying surging home prices, rising household debt and sluggish wage growth pose a threat to the lenders.
Bloxham, a former staffer at the Reserve Bank of Australia, said that “fundamental factors” largely explain the price boom and, “as a result, we do not judge it to be a bubble.”
Demand for housing in Melbourne and Sydney has been supported by domestic and international migration, foreign investment and a lack of new supply, he said. Price increases have been much smaller in places such as Perth, where demand has been weaker amid the waning of a mining boom.
APRA has gradually been ratcheting up restrictions on riskier loans and in recent months the big lenders have all raised interest rates charged on interest-only loans. Bloxham said he believes these regulatory measures will help cool the market, along with lower demand from overseas and increased supply.