The long-term rise in Australian house prices since the early 1960s has been the most sustained property market upswing in the world in recent decades, new research says.
Researchers at the Switzerland-based Bank for International Settlements have analysed long-run trends in house prices across 47 countries, as part of a paper exploring how interest rates affect the price of real estate.
The Grattan Institute says young people have missed out on a once in a lifetime wealth boom.
The paper, which finds short-term interest rates are a “surprisingly important” driver of house prices, also includes extensive data that underline the sheer size of the boom in house prices here and elsewhere.
In one such illustration, the authors analyse housing market “upswings” and “downswings” – which they define as periods of price rises (or falls) that last for three years or more.
The report found upswings had been far more common than downswings across the 47 countries, accounting for nearly 80 per cent of the periods studied in advanced economies. The long-term rise in Australian housing was the most persistent of all.
“The upswings lasted on average 13 years; with the longest one, in Australia, still continuing after half a century,” the report said.
“By contrast, downswings accounted for only 8 per cent of the advanced economy sample; they lasted on average five years, and the longest one, in Japan, lasted 13 years.”
From 1961 to 2016, the report says Australian house prices have grown by an average of 8.1 per cent a year, in “nominal” terms – not taking account of inflation. That is the sixth-highest growth rate among developed nations.
Since 1961, it says the cumulative gain in Australian property prices is a whopping 6556 per cent. That compares with a cumulative 1332 per cent, or 13-fold, rise in United States house prices over 47 years.
Australia’s nominal cumulative growth is lower than the 7726 per cent increase in Norway’s housing market, although that occurred over a longer timeframe of 66 years.
n “real” or inflation-adjusted terms, Australian prices have risen by an average of 3 per cent a year since 1961, with cumulative gains of 373 per cent.
The authors acknowledge their data is “unbalanced”, as it spans different periods of time depending on the country. Even so, it highlights very strong growth in property prices over multiple decades.
“Is housing a good long-term investment? Our data suggest that the answer is an unqualified “yes”: real house prices increased on average by close to 7 per cent per annum in the sample of 20 advanced economies for which there are 45 years of data on average,” said the working paper, by Gregory Sutton, Dubravko Mihaljek and Agne Subelyte.
Given the study’s focus on national prices, and long-term moves, it does not consider localised falls in house prices within Australian cities, or falls that lasted less than three years.
By the author’s definitions, Switzerland, Sweden, Canada and New Zealand have also not experienced a “downswing” of three years or more in their house prices.
However, the data the researchers used for these countries do not go back as far in time as Australia’s figures, giving Australia the longest-running “upswing”.
The research comes as Australian regulators and central banks are keenly focused on the risks created by a build-up of housing debt, which has reached record highs after the growth spurt of recent years.
The Reserve Bank last week warned about several areas where it sees “potential risk” in the property investment market, such as the growing number of people with multiple investment properties, and an increase in investors aged over 60 who have a mortgage.
A key finding of the BIS report is that there is a lag between changes in interest rates and movements in house prices, and it can take up to five years for changes in borrowing costs to have a major impact on prices.
The authors said this delayed response might be because of the high “transaction costs” (such as taxes and real estate fees) involved in property purchases.
Correction: An earlier version of this story said Australian house prices had risen by an average of 8.1 per cent a year between 1961 and 2016 in “real” or inflation-adjusted terms. That reflected an error in the BIS paper, which has been corrected. The story has also been corrected to say this increase was “nominal,” meaning it did not take inflation into account.
Originally Published: www.brisbanetimes.com.au