World’s biggest housing bubble

Published 03 September 2014

With Australian house prices re-accelerating over the last three months after spectacular growth on the back of a speculative investment boom, many people are asking how our frothy market compares to the rest of the world.  So The Australian Financial Review has crunched the numbers, carefully evaluating the performance of the best house price indices across the Western world.

Specifically, we have tracked changes in house prices in Australia, the United States, New Zealand, Britain and Canada since the end of 1995.  We select this period for two reasons. First, the mid-1990s coincided with the big surge in household leverage across Western economies, which was the principal cause of unusually strong house price growth in the ensuing years

Second, the jump in leverage was itself a function of Western central banks adopting explicit or implicit inflation targets in the mid-1990s, which many believe helped lower inflation and significantly reduce interest rates.  The Reserve Bank of Australia argues that the substantial fall in nominal borrowing costs over the 1990s and 2000s drove the once-off jump in leverage and house prices during that period..............

Our findings are striking. Since the end of 1995, Australian home values have experienced total capital gains of 283 per cent, massively outstripping any other peer country..............


read more