Home truths

Australia’s high property prices will tumble eventually, right? Not necessarily, according to Fellow in Real Estate Economics Nigel Stapledon.

“Doom and gloom has been predicted in Australian real estate for 15 years and popular commentators make a lot of noise but it’s not particularly good economics,” says Dr Stapledon, who's based at UNSW's Australian School of Business.

“The Economist magazine looks at price to income ratios in terms of real estate and ours is high. But they also look at the price to rent ratio, which is akin to dividends or earning yields for stocks and is a lot more useful and justifiable as an economic measure.

“Looking at the price to rent ratio and allowing for the level of real interest rates, there is no reason why prices should be seen as particularly special or alarming.”

Rises in prices can develop momentum that detaches them from economic fundamentals, Stapledon says. “That’s what happened in the US in the lead-up to the GFC. Australia’s different economic story courtesy of the resources boom justified the rise in prices here.

“I’d be concerned if people believed our market is somehow different and can’t fall. It certainly can. But at the same time, our market doesn’t have to behave as the US market did.”  

Read the full story in the latest issue of Uniken.

Media contact: Steve Offner, UNSW Media, 02 9385 1583