Australia’s Love – Hate Relationship with Property

Australia is fortunate enough to have abundant data on the finance and real estate markets, and as pointed out by Philip Soos, a researcher for the School of Humanities and Social Sciences at Deakin University, Australian property values have been surging for the past couple of years.  We take a look at how the nation has developed a love – hate relationship with property for the past 150 years, and where we stand in the property cycle.

Property and Inflation. If both are moving at an almost even pace, that would mean that people are not favouring property over goods and services, and vice versa. Except for 1961 – 64, every rise in real prices have led to a downturn, keeping properties in line with the rise and fall of inflation.

Property and Rent. The cost of renting and buying property have closely matched, as drastic upswings in the ratio of property and rent have suggested the presence of a property bubble – from the 70’s, early and late 80’s and recently.

Property and GPD. The Great Depression was caused by a deflating property bubble, specifically in the commercial property market.  As mentioned earlier, every rise has always caused an economic downturn, causing recessions almost every decade.  The availability of credit has been one of the major drivers of the boom and bust cycle. When debt peaked 1893, it created a commercial land bubble and became one of the worst depressions in the history of the nation.

While property booms have been a part of Australia’s economy, it has always been evened out by property values and private debt.

Property and Debt. Data on Private debt goes as far back as 1861, while Land Value data started in 1910. Each of the peaks in debt – in 1893 and 1920’s have caused property bubbles to burst, and it was only during the 1970’s that the debt cycle was able to recover and recorded the highest peak on record in 2008, becoming the largest land boom on record.

Conclusion

The Australian property market has been driven by major economic factors, particularly inflation and debt that allows it to go through its cycle and recover. As of this writing, property values and interest rates have reached record levels that the nation has never seen before.  One thing’s for sure – If a boom or bubble happens, it will be the biggest in history. So goes on Australia’s love – hate relationship with property.