Wednesday, 19 March 2008

Is a 21st Century Australian Property Crash Near?

I've been reading an article about mortgage stress hitting the rich. I've heard rumors by some that property prices in Australia will crash in 2008. It happened in Japan, the US, the UK, and, as some say, it is Australia's turn. Still the optimists say that in Australia things are different. One of the factors that fuel rising property prices is high immigration, and Australia under the Howard Era and even during the Rudd Era had high levels of immigration. During the last years of the Howard Government, if we look beyond official numbers and count students, net migration rate was about 300,000 per year. Sustained high immigration, the optimists say, will keep house prices high. However, both the US and the UK also have high immigration rates and these countries were not immune from property price crashes.

Some say there there is a shortage of houses in Australia because of laws that try to prevent urban sprawl. This, some say, can keep house prices high. Laws that block higher supply of houses are established and enforced by government who in a democratic country like Australia listen to the demands of the people. Releasing land may provoke an outcry from property investors but the Federal Government and State Government must also listen to buyers who want cheap houses. These opposing interest groups should moderate the supply side. Based on what I have read, buyers seem to be winning because the Victorian State Government will modify laws to supply more land (read More Land, Lower Prices - Guaranteed).

Since I live with my parents, I don't worry about housing affordability. However, if I want to invest in property I would prefer to do it through a mutual fund like the Fortuna Fund.

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