David Bassanese says house prices are not going to crash
David Bassanese, in his inaugural Switzer website blog, noted this week that rarely a week passes without the perennial issue of house prices being raised.
He's long been of the view that Australian house prices are not wildly over inflated – and are not about to crash any time soon.
And recent research from the Reserve Bank of Australia only affirmed his view.
He says a major reason why house prices seem high relative to household incomes in this country was because of the large “proximity premium” that has been built into the value of most of our homes which have been allowed to luxuriate on large parcels of land very close to our major urban job centres.
"We haven’t had the huge house price bubble that many have feared," he said.
"In fact, the adjustment in house prices in recent decades to these forces has been remarkably orderly.
"Consider at the national level, for example, that house prices have broadly tracked household disposable income over much of the past decade. "Of course, there have been cyclical swings around this average – in line with cyclical swings in employment and interest rates – but little evidence of a wayward upward trend.
"Household debt levels have also flattened out, and there’s still little evidence of a broad-based upsurge in mortgage defaults.
"Indeed, more and more Australians are taking advantage of low interest rates to save more and get ahead of their mortgage repayments.
"It’s for this reason, moreover, that I dispute billionaire fund manger Kerr Neilson’s recent claim that “to believe home prices in the next 10 years will meaningfully outpace the consumer price index (CPI), as they have in the past, would require a remarkable set of circumstances.”
"All we need is household incomes continuing to rise by more than inflation – consistent modest real wage gains on the back of rising productivity – and for house prices to continue to broadly track household income."
His regular "Bassanese" column appeared in the AFR three times a week between 2003 and June this year when he became chief economist at Betashares.