Keep calm, there is no property bubble, says franchise head

The chief executive of a major broker franchise has refuted claims that there is a property bubble in Sydney and Melbourne



Mortgage Choice CEO, John Flavell has challenged claims that there is a property price bubble in Sydney, and to a lesser extent Melbourne, saying it is just a case of supply and demand.

Flavell’s comments come after Treasury secretary John Fraser told a Senate hearing on Monday morning that Sydney is “unequivocally” in a housing bubble, as well as some parts of Melbourne.

However, according to the franchise chief, to state that a property bubble exists in Sydney and Melbourne means that you have to believe there will be a sudden and dramatic reduction in property prices over a very short period of time – that ‘the bubble’ will eventually burst.  

“Property prices, like the prices for anything else, are driven fundamentally by supply and demand. Is that going to change rapidly or significantly in either Sydney or Melbourne and cause a bust?   

“In Australia we have a modest rate of population growth driving modest increases in property demand. We have had historically low levels of new construction keeping supply tight, especially in Sydney and Melbourne,” he said.

“We continue to see high rates of urbanization, particularly in NSW and Victoria, as our population is attracted and retained by our largest cities given the employment opportunities and the amenities they provide.”

But despite the demand to move to Sydney or Melbourne, recent infrastructure investment in the two major cities has almost exclusively been spent on roads, with an “acute lack” of public transport linkages, says Flavell. As a result, this is driving the population further into city centres, and further driving up demand.  

Therefore, increased demand coupled with restricted supply means prices are expensive and are likely to remain expensive – not a property bubble. 

“If you are prepared to believe basic rules of supply and demand do not apply to the Sydney and Melbourne property markets, and if you believe the population is about to go backwards overnight.

“If you believe that we will be able to manufacture new land close to the heart of our busiest urban centres, if you believe that we are all about to flee to the country and there is a fleet of trains that could take us there and if you believe we all want to move our families into studio apartments and forego our houses, then you just might believe that a property bubble exists in Sydney and Melbourne.”

While prices in Sydney and Melbourne have risen significantly, recent research by CoreLogic RP Data shows that this current growth cycle is actually much slower than that recorded between the ‘boom’ period of 2001 and 2004.

The current growth cycle has seen home values increase by 38.8% in Sydney and 23.6% in Melbourne since May 2012. In comparison, over the same period post-2000 they had risen by 60.2% in Sydney and 58% in Melbourne.

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