Popping the Housing Bubble Myth

Richard Katter
Economics, Strategy and Research

There has been a lot of talk in the media recently of the existence of a housing bubble in our midst. This is alarmist, to say the least. A housing bubble has been predicted for our market since before Darren Lockyer took over from Allan Langer as Benno's number one man.

A housing bubble is created by successive periods of strong housing growth generating the hot air to expand the bubble. The major headline grabbing concern with a bubble is that it will eventually burst. This bursting of the bubble occurs via the developer identifying the excessive price growth and subsequent profitability and "making hay while the sun shines" thus quickly and excessively increasing the supply of dwellings on the market. This excessive supply leads to a rapid decrease in prices, or the bursting of the bubble.

Talk to any developer and their primary concern at the moment is that they can not get anywhere near the stock on the market to supply the current demand, let alone create an oversupply. They are faced with highly restrictive finance conditions, a restrictive legislative environment and are also faced with excessive costs rendering their projects unfeasible. This situation is not conducive to rapidly increasing supply to burst the bubble.

The major issue facing the Australian property market and particularly the Queensland market is the inability to supply stock and this is what is driving prices North. Sure, the increase in prices combined with increasing interest rates will eventually lead to a cooling of price growth but it will not lead to a bursting of a would-be housing bubble.

Alternatively, a bubble could burst as a result of market participants fleeing, as occured in the US and the UK (and numerous other developed markets) during the GFC. Given our strong forecast growth into the medium and long term, it is unlikely that even the most bearish market commentator would foresee this.