Housing bubble spectre raised

by Mackenzie McCarty09 Apr 2013
The Irish planning system also contributed to the bubble, he argues, by creating a system of supply that was unresponsive to market demand. Governments granted planning permits ‘too late’, resulting in the building of large numbers of standardised, small, poor-quality homes in satellite locations far from city centres – something van Onselen believes is currently happing in certain parts of Australia, including Melbourne.

There are, of course, significant differences between the Irish and Australian economies and van Onselen believes that an Australian housing bubble, while certainly possible, wouldn’t likely be as dramatic as the Irish one.

“There are some pretty big differences. Irelands exchange rate and monetary policy is set by the ECB, while Australia has control over its own economy.”

Ireland also doesn’t have Australia’s mining sector, but van Onselen warns that, if we were to experience a mining bust, ‘that could be our catalyst’.

“There certainly are a lot of similarities, but I don’t think we’d have nearly as big a bust as Ireland; we’ll have a similar, less drastic fate. The risk for Australia is it basically hinges on the mining boom. If we had a big, big drop-off in mining, we could have a pretty big drastic adjustment. But it’s hard to say what the price adjustment would be if that happened. I couldn’t see Australia being anywhere near 50% [reduction in home values] but 20% could be possible.”


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COMMENTS

  • by Wozza 9/04/2013 10:27:31 AM

    Another prophet of doom. We have already gone through an adjustment since 2007/8 and I believe the Australian economy is in much better shape than Ireland. Our banking system is regulated and lends responsibly so why would anyone compare the Irish system with ours?

  • by James 9/04/2013 11:18:51 AM

    Wozza. Why do you label this guy a "prophet of doom" for simply outlining some downside risks, namely that the mining boom could unwind in a nasty matter. Whether it does or it doesn't is beside the point. But burying your head in the sand and saying that a painful correction is not possible here is delusional.

    Plus, he never said that Australia would replicate Ireland. Rather that there are some simularities that are worth being aware of that, in the worst event, could come back to bite.

  • by NoTimeLikeTheFuture 9/04/2013 11:55:49 AM

    Many of Ireland's characteristics do exist in Australia.

    I believe the Australian market has been successfully propped up by:

    1. SMSF's entering the market
    2. Australia's 888 visa encouraging property investment from Asia, raising prices on new property with flow on to existing properties
    3. Elevated mining incomes and strong employment, with falling interest rates

    A bust would hurt a lot of people but an orderly correction makes sense..