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Supply and demand are the driving factors of house price rises

By Rebecca Zhang

Strong price growth in the residential real estate market in Australia has led many to point a finger toward foreign investors. However, a new report from the Centre for Independent Studies (CIS) has shown it’s the effect of supply and demand that has been the culprit.

The report, titled Eight Housing Affordability Myths, analysed many economic factors that have led to house price growth in recent months. A strong rise in population, low interest rates for home loans and growth in household incomes have all played a part in this. However, the report found it is also a “critical lack of new housing supply” that has “fuelled long-term increases in real house prices” all over the country.

“Foreign investors and domestic investors have been made scapegoats when it comes to housing affordability, but they are no more to blame for rising house prices than first-home buyers,” said CIS research fellow Dr Stephen Kirchner.

“The problem is not too much demand, but too little supply.” Dr Kirchner noted the low level of land supply dipped over the last ten years, affecting the availability of land for new homes. Prices will continue to rise, even though more homes on the market will help ease some of the pressure from demand, prices are predicted to keep rising.

The Australian Property Monitors (APM) House Price Report for the June quarter showed very strong house price gains over recent months. APM senior economist Andrew Wilson noted the “capital city housing markets show no signs of a significant slowdown in prices growth through the mid-year period”. Looking ahead to the rest of 2014, Dr Wilson expects moderate to strong house price growth. Brisbane, Adelaide and Hobart will be the strongest cities for growth, while real estate in Sydney, Melbourne and Perth will see moderate growth.

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