Australian housing `bubble' fears overblown, HSBC economist says

(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.
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  • Andrew - Aussie7/07/2017 10:11:08 AM

    Finally someone who can count!!!
    When I went to school, basic economics said, reduce supply to the same demand and prices will rise. Developers have been using this rule for years with great success. For those same years the government keeps promising to cut red tape to increase supply - with no success. So now, more red tape on the lending side to strangle the industry nationally, rather than deal with the basic issue of supply needing to meet demand!
    Has anybody thought this through? Shut down the private investment market and who gets to provide the rental housing needs? Hope our state governments are cashed up as demand is going to hit them hard over the next few years!

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