Our Backyard – Aireys Inlet

According to the International Monetary Fund, Australia has the third highest house prices, relative to the level of people’s incomes, among 24 advanced economies.  Our house prices are so high that just about every foreign economist who looks at them becomes convinced we’re sitting on a bubble that could burst at any moment.  But few Australian economists agree with them.

As Saul Eslake, of Bank of America Merrill Lynch explains, foreigners are unaware of our economic geography.

Almost 60% of Australians live in cities with populations of more than one million, a proportion exceeded only by Japan, Hong Kong and Singapore.

Urban geography research suggests real estate prices are usually a lot higher in cities with populations of more than one million.  So an unusally high proportion of Australians live in big cities where house prices are safe to be higher.

Secondly, compared with cities in other countries, Australian cities are large in terms of area, relative to the size of their populations.  Trouble is, public transport and arterial roads in the outer suburbs of Australian cities are generally inadequate for the task of moving large numbers of people from these suburbs to the central business district.

Because of this, Australians choose to spend a higher proportion of their incomes on housing so as to spend a smaller proportion of their time commuting.  In the process we bid up the prices of houses and units closer in.

Thirdly, Australian house and apartment prices are higher because our homes tend to be bigger than those in other countries.

Eslake’s fourth point is that, thanks partly to the resources boom and two decades without a severe recession, Australians are richer than we were, even relative to other high income countries.

Guess what?  Better-off people tend to devote a higher proportion of their income to their housing.

We can afford to, so we do.


James Worssam

0418 585 815


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