The housing bubble Whodunnit

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This arti­cle is the third in a series on Australia’s hous­ing mar­ket. Read the first arti­cle here and sec­ond arti­cle here.

In the last two arti­cles in this series, I argued that Australia’s house prices “walk like a duck” – using BIS data, Aus­tralia is one of only four coun­tries where prices are twice as high in real terms as they were in 1985. And they “quack like a duck” – accel­er­at­ing house­hold debt is a major dri­ver of ris­ing house prices, as in the other present and past house price bub­ble economies (the US, Spain, Japan, Nor­way, the UK and Den­mark). So hav­ing con­cluded they’re a duck, what species of duck are they?

At first glance, the Aus­tralian house price bub­ble does appear to be a dif­fer­ent species to its Euro­pean and Amer­i­can brethren. Tack­ing Nigel Stapleton’s data onto the ABS series, we can develop an index for Aus­tralia going back to 1880 – com­pared to 1890 for America’s Shiller Index and (wait for it) 1628 for the Heren­gracht Canal Index. With 350 years of data, there is clearly no trend to the Euro­pean series; and after the sub­prime crash, any argu­ment that there is a trend to US prices now looks pretty shabby – even though prices are clearly ris­ing once more in the Land of the Sur­veilled (see Fig­ure 1).

Fig­ure 1: Long term real house price indices

Graph for The housing bubble Whodunnit

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About Steve Keen

I am a professional economist and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous debts accumulated in Australia, and our very low rate of inflation.
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5 Responses to The housing bubble Whodunnit

  1. TruthIsThereIsNoTruth says:

    That’s not a duck, it’s a goose that laid the golden egg, for some…

  2. koonyeow says:

    Looks like Aus­tralian house prices are likely to regress to the mean in the future.

  3. Pingback: Monday Morning Links | timiacono.com

  4. KatB says:

    Do you know of an exam­i­na­tion of the dis­tri­b­u­tion of the hous­ing bub­ble in var­i­ous cities? I’ve always assumed that all prop­erty was over­val­ued by a per­cent­age and thus all fell by a per­cent­age when the bub­ble burst. Is this true? Could it be that only some areas fell while oth­ers increased dur­ing a col­lapse of a bubble?

  5. pacham12 says:

    Steve, thanks for post­ing and always ask­ing chal­leng­ing ques­tions. The Aus­tralian hous­ing mar­ket is def­i­nitely inter­est­ing — My belief is that it is in bub­ble ter­ri­tory. How­ever I think it will take a mod­est increase in inter­est rates to burst the bub­ble. Mort­gage rates are his­tor­i­cally low (par­tic­u­larly com­pared to late 80’s and early 90’s). How do you fac­tor this into you analy­sis?
    Thanks!

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