Everyone ‘knows’ that property markets are prone to booms and busts. However, according to Dr Nigel Stapledon, writing in the new Housing Australia report for the Committee for Economic Development of Australia, house price growth is only a recent post-war phenomenon. From 1880–1950s, house prices in Sydney and Melbourne were relatively stable. Yet, since the 1970s, Melbourne has seen three major cycles and Sydney, five.

Dr Stapledon claims that people began returning to cities in the 1950s for two main reasons. Manufacturers began relocating to the urban fringes for more room. At the same time, well paid financial and information service sector workers moved back in. People also saw inner city living as a way to avoid commuting through the problem of increasing congestion. The process of inner urban gentrification began.

The most recent boom from mid-1990s to mid-2000s is part of a longer-term trend toward the rise of the city. “This is directly related to the revolutionary introduction of trains/ trams in the 19th century and most significantly the motor car, which lowered the cost of commuting and transporting goods around a city and allowed cities to grow,” writes Dr Stapleton. With shiny new automobiles people quickly opted to move out of the crowded inner cities, which went into decline.

Boom! The late 90s

Throughout the seventies and eighties, the Australian economy struggled against persistent high inflation and unemployment. A deep recession in the late eighties eliminated high inflation and, from 1991, Australia was on course for strong economic performance. The housing finance market was deregulated and there was intense competition between lenders within a relatively low inflationary environment. However, bad memories of 1980s’ interest rates, peaking at 17%, lingered. It wasn’t until the second half of the 1990s that people accepted the certainty of a low inflation/low interest regime.

The first property boom spanned 1996–2004, Sydney leading the charge with a rise of 85%. Dr Stapledon writes that eventually an overshooting market met the lag in supply, putting downward pressure on rents. From 2004–06, prices went down 9%.

Australians soon came to believe that the first boom had been a one-off response to low rates. They were proved wrong. Firstly, the 2007-08 global financial crisis ended the US and European housing booms and global interest rates reduced sharply. Asset markets, including housing, became highly desirable. In addition, rising immigration tightened Australian markets and rents increased again. Investment properties became more attractive. The Australian property market surged again.

The tapering of the resources boom in 2012, led the RBA to cut interest rates aggressively. It was hoped that housing growth would fill the gap created by the collapse in mining investment. This strategy led to the 2012–17 boom. Record low rates, 25 years of continuous growth and strong migration has seen Australian capital city house prices balloon by an average of 30%.

Ignore history at your peril

The Perth market is the perfect example of the boom and bust property cycle. At the epicentre of the resources boom, it experienced a rise of 173%, at one point even briefly touching Sydney’s median price. Currently, it continues on a downward trend.

The biggest influence over the property market for the past twenty years has been interest rates. The average historical bank rate is around 8%. It would be foolish to ignore this fact. However, history also tells us that, in supply constrained and amenity rich Australian cities like Melbourne, demand grows significantly more than the surrounds. The best option in the longer term is therefore to purchase property in an inner urban area. As the old saying goes, “don’t wait to buy land, buy land and wait.”

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