The anguish – in some cases, outrage – expressed in media about the so-called national property boom verges on farcical.
The tone and content of media coverage implies that Australia is having the mother of all property booms and that the situation has gone beyond reason.
There are frequent calls for regulatory action to prevent a disaster: stop foreign investors, eliminate negative gearing, clamp down on lending to local investors, discard any measures to help first-home buyers because they’ll just pump up prices and make a bad situation worse.
All this near-hysteria is predicated on the notion that we have a runaway national property boom, from which the only possible consequence is economic disaster.
Time to take a cold shower, a few aspirin and a wee lie down – then a reality check.
We don’t have a national property boom. Current conditions are mild in comparison to bull markets of the past. Even Sydney’s recent experience is tame compared to the genuine national property booms Australia has experienced.
The last time Australia had a nationwide bonanza was the period from 2001 to 2004. During that period prices went sharply north in every capital city, with three years of double-digit growth.
The average price growth in the capital cities in 2001 was 15.5%. In 2002 was 18%. The following year it was 19%.
Compare that to 2.1% in 2012, 9.8% in 2013 and 7.1% in 2014, according to Domain data.
Back in 2001, there were headlines every week depicting a national crisis. Prices had gone mad, no one could afford to buy any more and it was all headed for a crash. The word “bubble” appeared daily in headlines.
But prices grew considerably more the following year and even more the year after that.
When it finally ran out of steam in 2004, there was no crash. There was a 3% average rise in capital city prices that year and a 2% increase in 2005.
Hundreds, if not thousands, of headlines throughout the years from 2001 to 2004 predicted disaster as a result of the boom, with home values “plummeting”. It simply did not happen.
Many claimed the Great Australian Dream was dead because young adults could no longer afford to buy (yes, we’re reading the same headlines today, a dozen years later).
This was particularly so in Sydney, after price growth averaging 17% in 2001, 22% in 2002 and 16% in 2003. Yet in the next decade, half a million first-home buyers bought dwellings in NSW, the bulk of them in Sydney.
The headlines today are even more extreme, despite the reality that current market conditions are mild by comparison to the early noughties. There are claims that Sydney prices are unsustainable after the growth of 2013 and 2014 – and therefore the market must fall this year.
But there is no sign of any decline in market activity across the Sydney metropolitan area. Sales activity remains elevated and clearance rates strong. And price growth rates so far in this cycle are lukewarm relative to events 10-12 years ago.
Keep in mind, also, that Sydney is the only capital city to achieve double-digit price growth in the past two years. In 2003, every city had growth above 12%, including extraordinary rises in Brisbane (35%), Canberra (25%), Adelaide (24%), Perth (22%) and Hobart (21%).
Last year, growth in those cities was Brisbane 5%, Canberra -1%, Adelaide 4%, Perth 2% and Hobart 3%, according to Domain data.
There’s no national boom in those figures. Economists keep telling us we have one, because they think we ought to have one, because interest rates are so low. And in the simplistic mindset of your (very) average economist, it’s all about interest rates. If rates are at record lows, there must be boom price growth everywhere. And if the figures don’t show that, the figures must be wrong.
God help the nation is anyone starts listening to these turkeys.
Many of our chattering economists need to take time out to study real estate and the elements that drive prices. In most cases, interest rates are of minor importance only.
We have had an extended period of record low interest rates but only one major market has boomed. There’s a message there that even an economist should understand.