Australia’s property bubble

By Felix Salmon
August 3, 2009
James Glynn has an odd article today, headlined "Australia Tries to Avoid a Housing Bubble":

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James Glynn has an odd article today, headlined “Australia Tries to Avoid a Housing Bubble”:

Home values have started rising again, after falling in 2008, and are slightly above their record high reached in February last year…

One reason that Australia’s housing market is comparatively tight right now is that it didn’t get too out of control during flush years. Although Australia had its property boom between 1997 and 2003, policy makers were able to prevent prices from getting too far out of whack.

I think that by most metrics Australia’s property bubble was bigger than that in the US. But let’s go to the tape:


Between 1992 and 2008, real Australian house prices, as measured by the OECD, rose by 95% in real terms, while US house prices rose by 40%.

Or, for that matter, ignore the crazy bubble years of 2002 and 2003, and just look at house prices since Australian “policy makers were able to prevent prices from getting too far out of whack”: between 2004 and 2008, US house prices rose 12% in real terms, while Australian house prices rose 17%.

Australia did have a property bubble, and prices did get out of control, especially in 2002-3. The main difference between Australia and the US is that Australia’s property bubble hasn’t burst yet.

Update: See also Hempton.


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The apologists for Australia’s crazy house prices point to Sydney between 2003-2007/8, when the increases were not too ridiculous. However, the rest of the country went mad in this period. And Sydney itself had gone mad for several years before that.This is the second time I’ve seen that the non-Australian media have picked up the Oz property bulls’ spurious argument. The OECD stats and your blog post are more realistic.Most interesting are the relative debt levels of individuals in Australia, and the cost of housing compared to the example of the USA, where a genuine crash in prices occurred. Have a look at some of the interesting charts here for example – 04/06/steve-keens-debtwatch-no-33-april- 2009-lies-damned-lies-and-housing-statis tics/That said, the Aussie property bubble seems to be the one remaining in the world and is awaiting its pop. I’m actually amazed it hasn’t occurred yet.

Posted by SB | Report as abusive

Bullish trades on Australian assets (stocks and mainly the currency) are one of the most favoured ones currently in the market.So its hardly surprising that you get stories like the on the WSJ. A lot of helpfull people will be able to provide you with the bullish side of the argument, and a journalist has no reason to doubt the “specialits”And so the bubbles go.

Posted by Fred Engels | Report as abusive

Felix ,great article with down to earth stats ,SB makes some very valued points and this is indicative of the major property portals advertisng campaigns; which have become intense with the market clearly bottoming out.Amul Raj Desaitwitter -property1

Agree. I am flabbergasted that Glenn Stevens talked last week about the “risk” of a housing bubble – we are in the midst of one of the worst ones the world has seen AND we have a govt doing its best to keep it inflated. Its certainly a lot worse than the US one ever was, and the UK, and Spain. Aus takes the cake (NZ close behind) – and this in a country with an enormous amount of land.

Posted by james | Report as abusive

Of course the really interesting question is “WTF?”. There seem to be three main answers:1) The Oz property bubble was about inflating the prices of existing housing stock and not encouraging overbuilding.2) So, combined with high immigration levels, there is a genuine shortage of housing which supports demand, even at insane prices.3) Unemployment is contained here at present, thanks to aggressive government stimulus of the economy ($ for $, more aggressive by far than the equivalent US measures) and the “magic pudding” effect of the continuing China expansion. So there is no forced selling or drop off in buyer demand.All in all, a mixture of dumb luck and aggressive state intervention, IMO. But where it will all end, I have no idea.Also, take a look at this chart:which shows the difference in Oz and US house price behaviour even more starkly. Scary stuff!!

Posted by Zardoz | Report as abusive

Apologies. Trying again on that US/Oz house price graph:Here.

Posted by Zardoz | Report as abusive

If ever there was a country in need of a property crash, it is Australia.

Posted by syzygy | Report as abusive

Felix, there’s always the temptation to post things with ‘bubble’ in the headline but the thing is what is the evidence?(1) Unlike the over-supplied US, Australia has a chronic and structural housing shortage.(2) The other point is that the problem in the US was generated through loose underwriting and credit expansion while in Australia, this did not happen: there was credit expansion but we did not in general terms have anywhere near the loosening of standards (subprime was less than 1% of lending even at the height of the securitisation boom).(3) Finally, you are charting nation-wide figures. This is not very helpful: the 2002-03 bubble petered out in most of the country. The 2006-07 numbers are really just Western Australia and part of Queensland that went through a mining boom. Sydney, Melbourne, etc. were flat. So you a looking at one State here, maybe a couple at most.So, you know, there isn’t really any evidence that what is happening now is a bubble, other than in Western Australia maybe…

I have put together some of my thoughts on the Australian Property Bubble. Hope you find the read interesting… 566921/Australian-Property-Bubble

Posted by Sid | Report as abusive

Looking at the graph, it does show that the Australian property bubble was rising in the 02-03 years. However, it does seem to cool down slightly after 2009, and also after the recent global financial crisis. Despite this, apartments in Australia are still rather attractive to some foreign investors.

Daniel –

Posted by DanSTHLM | Report as abusive