As can be seen in the last chart house prices have been well above trend for nearly the last two decades. Which brings us to the issue of chronically poor housing affordability. Predictions that high debt levels would lead to a crash in property prices threatening the financial system and the economy have been a dime a dozen over the last two decades. None have come to pass. Most borrowers are able to service their mortgages.
However, there is a danger in getting too complacent here. Household debt to income ratios are very high and allowing them to get ever higher runs the risk that there could be a major problem at some point so it makes sense to act pre-emptively to cool things down.
But whether there is the risk of a financial crisis or not the really big problem is poor affordability. There are two main drivers of the surge in Australian home prices relative to incomes over the last two decades. First, the shift from high to low interest rates has boosted borrowing ability and hence buying power. Second, there has been an inadequate supply response to demand.
The supply short fall relative to population driven underlying demand is likely the major factor in explaining why Australian housing is expensive compared to many other countries that have low or even lower interest rates. And the concentration of Australians in just a handful of coastal cities has not helped either.
A range of other factors have played a role including negative gearing and the capital gains tax discount for investors, foreign buying and SMSF buying, but they have been relatively minor compared to the chronic undersupply. And investor and foreign demand have not been drivers of the latest surge. The good news is that we may be getting closer to the end of the year bull market in property prices: interest rates are likely at or close to the bottom so the tailwind from falling interest rates is fading; strong home building in recent years and the collapse in immigration may lead to an oversupply of property; and the work from home phenomenon may take pressure of capital city prices.
However, there are no guarantees. And things could just bounce back on the demand side once the pandemic recedes and immigrants return. So a long-term multifaceted solution is called for. The first thing to do is to tighten macro prudential controls to slow record levels of housing finance. Raising interest rates is not possible given the weakness and uncertainty hanging over the rest of the economy and crashing the economy to get more affordable housing will help no one.
So, a tightening in macroprudential controls to slow lending is warranted. This time around investors are playing a lessor role in the property boom so macro prudential controls should be broader than was the case in Ideally first home buyers will need some sort of exemption. Of course, this is just a cyclical response and more fundamental policies are needed to address poor housing affordability. Ideally these should involve a multi-year plan involving state and federal governments.
My shopping list on this front include:. You'd be lucky to get a booking in November or December. Same goes for a Kimberley cruise. Cabins at the lower end of the price scale have all but evaporated for Pinetrees, the largest accommodation on Lord Howe Island, is booked solid until Christmas.
Hawk Dreaming Wilderness Lodge in Kakadu is full for this year, and it's the same story for much of the accommodation in Australia's largest national park. After a year of zero tourism income in , travel operators are making hay while the sun shines. If you're looking to go anywhere in the Top End, the Red Centre or cruising along the Kimberley coast, better book now because the outlook for overseas travel next year is about as certain as a roll of the dice. See also: Fabulous freebies: The 10 best free activities in Australia.
See also: Your complete guide to Australia's half-price airfare destinations. Home Destinations. Search Site. Previous slide Next slide. Why Australians can't live like the French or Italians Contains:. How can you get tested on holiday to be allowed back into Australia? Flight attendant reveals top tips for surviving the return of long-haul Contains:. How to chose the right trip for Our expert guide Contains:. US, yes; Japan, no: Where you can and can't travel to now borders are open Contains:.
Exchange rate changes also mean "shopping in Europe and Japan now feels a lot cheaper than before". Sydney, along with Paris and London, was ranked as one the most expensive places in the world for a weekend getaway, mainly due to high hotel room prices.
A Sydney five-star hotel room is more than twice the price of one in New York. In comparison, Melbourne was a cheap stay, costing about 70 per cent as much as New York. Melburnians and Sydneysiders pay more for their cigarettes than anyone else in the world; for every pack, 70 per cent of the cost is paid to the government in taxes.
Also encouraging good health in Australia is the low cost of gym memberships, which are much cheaper in Sydney and Melbourne's central business districts than those in the US. But a pair of trainers was more expensive, though nowhere near as much as in France, Germany, or China.
For those looking for an inexpensive romantic outing, choose Indian. Mumbai and Delhi are at the top of Deustche's refined "cheap date" index, while Rio de Janeiro and Mexico City also earned a mention. Tokyo, Wellington and San Francisco were among the most expensive nights out. Big Mac fans should avoid Latvia, which topped the famous burger index, as well as Lithuania and Norway. Deutsche Bank Australia chief economist Adam Boyton, who was not an author of the report, said Australia was expensive because "we've gone a very long time now without a serious economic slowdown".
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