Monday, August 20, 2007

Real House Prices in Australia

Following up from yesterday's post I downloaded data on the Australian consumer price index and computed series for real (inflation adjusted) house price indices:

These series, like those I posted yesterday are for established houses only (not new houses). I used the specific consumer price indices for each city. The next graph shows the real year on year rates of change in hosue prices:

The average growth rates over the entire period for each of the cities is as follows:

Sydney 3.0%
Brisbane 4.0%
Adelaide 1.3%
Perth 5.0%
Hobart 2.7%
Canberra 2.3%

But as we can see readily from the charts the average rates for 1986 to 1999 were much lower than this:

Sydney 2.3%
Melbourne 0.5%
Brisbane 0.4%
Adelaide -2.7%
Perth 0.6%
Hobart -2.0%
Canberra -1.5%

Only the boom from the beginning of 2000 lifted the real rates of price change into the black for all cities. EnoughWealth's comment that the real rate of increase for Sydney is between 2-3% is accurate, but it's not true of other Australian cities if we assume that the 2000 boom was an anomaly. Based on the 1986-1999 period and what has been seen historically in US housing markets I'd bet that the true long term rate for other Australian cities is less than 1%. In the next few years I'd expect it to be even lower as prices revert to the mean trend. Of course I could be wrong and the other cities might instead continue to perform like Sydney. Theoretical this could happen if the supply of desirable locations is restricted in the future. When supply of land is restricted we should expect land prices to rise at the same rate as the rate of economic growth. This is what appears to be happening in Sydney. But desirable locations are not as restricted in the other capital cities.

1 comment: said...

The images on this post aren't working (at least for me)...