How expen­sive is hous­ing?

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This is often treated as a “how long is a piece of string?” ques­tion, but The Econ­o­mist has per­formed a great pub­lic ser­vice by allow­ing an easy com­par­i­son of the length of this piece of string across many coun­tries and over time.

Check it out your­self. For Aus­tralian read­ers, house prices today are almost 2.5 times what they were in real terms in 1986; and our price bub­ble (in CPI-deflated terms) turns out to be smaller than some coun­tries (notably Belgium’s) but larger than the USA’s and UK’s.

Like all such exer­cises, it is lim­ited by the time series from which the data is taken: the ear­li­est data shown here is for 1975, which is after the sec­ond major finan­cial cri­sis of the post-WWII era (the first was in 1966) but at the end of what was, for its time, a very large prop­erty bub­ble. So the ref­er­ence point of 1975 could itself rep­re­sent a “high­ish” point for house prices, rather than “fair value”.

The data is also short for some coun­tries, and with a dif­fer­ence ref­er­ence date (say 1987 rather than 1976) the rel­a­tive rank­ing of coun­tries changes sub­stan­tially. A quick look at the Heren­gracht Index–which shows the CPI-deflated value of hous­ing along a wealthy canal in Ams­ter­dam between 1628 and 1972–shows how impor­tant the start­ing date can be in work­ing out whether hous­ing is “expen­sive” or “cheap” at any point in time:

The impor­tant macro­eco­nomic issue which this data alone doesn’t address is the level of debt that house price infla­tion has led to. It is prob­a­ble that a higher real house price reflects a big­ger ratio of mort­gage and other pri­vate debt to GDP, but this isn’t nec­es­sar­ily the case. That ratio is the key indi­ca­tor of whether a coun­try is going to expe­ri­ence a debt-induced reces­sion.

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  • Eter­nal Stu­dent

    @pb 98.

    Quite true. To be clear, I wasn’t say­ing that there hasn’t been a price drop in Bel­mont. Rather, that the Banks are more involved in prop­ping up the less expen­sive mar­kets.

    Often, in the more expen­sive areas, peo­ple tend to buy with cash, or to put more skin in the game. In con­trast, it’s those areas where the FHA loans were/are eas­ily avail­able that we see the prob­lem loans, IMHO. Espe­cially with zero down loans. The FHA limit on the super-jumbo con­form­ing loans is about $720,000 now. I don’t believe you can do a zero down with that in Bel­mont! 🙂

  • soho44

    Just heard online (from a Lon­don sta­tion) that the reces­sion is all but over?

    How much are 1 bed­room rents these days in Syd­ney? I’m mov­ing and my new rent will be almost $800 (vs. the cur­rent 660). Square footage is going from roughly 650 to 750.

  • Zulu

    Just read the fol­low­ing arti­cle about UK infla­tion, the CPI has had the biggest monthly jump ever recorded of 2.9% up from the pre­vi­ous 1.9%. While the RPI has jumped the most in over 30yrs to 2.4% from the pre­vi­ous 0.3%, this jump is blamed on house prices.…..??

    I believe this will be tem­po­rary then defla­tion will take hold in the longer term.

    you can find cost of 1bed­room rents in Syd­ney at a cou­ple of sites, eg.

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  • noah cross

    Hous­ing Bub­ble Fears, And Prices, Soar In China

    Just over three years ago, song­writer Liu Shuqiu protested China’s high hous­ing prices with a satir­i­cal song that urged “peo­ple who don’t want to be slaves to their mort­gages” to rise up.

    The song used the tune of the Inter­na­tionale, the anthem of inter­na­tional social­ism, and the lyrics exhorted:

    We should fight for houses, shat­ter the devel­op­ers to pieces. Don’t think we are obe­di­ent; the con­se­quences will be seri­ous if we get mad.

    …the fate of a pop­u­lar tele­vi­sion soap opera, Dwelling Nar­row­ness, which was pulled from the air­waves. The show charted two sis­ters’ strug­gles to buy an apart­ment, with one of them even­tu­ally becom­ing the mis­tress of a cor­rupt offi­cial.”

    Lis­ten to the story as is has remark­able sim­i­lar­i­ties to Aus­tralia: gov­ern­ment dis­tor­tion of prices etc etc

  • scottmuz

    Just noticed that the “6th Annual Demographia Inter­na­tional Hous­ing Afford­abil­ity Sur­vey” is out.

    The report has a major focus on Aus­tralia.

    See here

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