Property bubble debate sparked again
The debate about whether the Australian residential property market is a bubble has been sparked again, with associate professor at the University of Western Sydney Steve Keen and Rismark International managing director Christopher Joye standing on the opposite sides of the argument.
Keen and Joye embarked on yet another discussion on the topic at the Portfolio Construction Forum in Sydney, with Keen reinforcing his prior convictions that the property bubble existed and would burst in the next 15 years.
During his presentation, Keen produced figures showing an almost six-fold rise in Australian property prices since 1986, compared to only a two-and-a-half times increase in the United States.
He said that the American property bubble burst in 2006, and there were a couple of reasons that the Australian bubble hadn’t popped yet. The Government’s Rent Control prior to 1949 and the First Home Owner’s scheme introduced in 1983 distorted the market, according to Keen.
“A bank will lend you $970,000 and you can bid on a $1 million house. Is it any surprise that the residential market is a bubble?” Keen asked.
But Joye disagreed, saying that although the prices have risen in recent decades, the house price to income ratio in Australia hadn’t changed much in recent years.
Joye highlighted Keen’s 2008 predictions that house prices would fall by 40 per cent in the next 10-15 years, saying the market currently stood at 80 per cent above his forecast.
An electronic survey was conducted at the forum, with more than half of 300-strong audience believing that the Australian residential property bubble existed. Twenty-four per cent disagreed, while the remaining 20 per cent of participants were unsure.
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