The long-term rise in Australian house prices, which began in the early 1960s, has been the most sustained property market upswing in the world in recent decades, according to a new study from the Basel-headquartered Bank for International Settlements (BIS).
Researchers analysed long-term trends in house prices across 47 countries as part of a paper exploring how interest rates affect the price of real estate. The researchers found that short-term interest rates were a “surprisingly important” driver of house prices.
The paper included extensive data that underlines the sheer size of the boom in house prices in Australia and elsewhere.
In one such illustration, the authors – Gregory D Sutton, Dubravko Mihaljek, and Agne Subelyte – analysed housing market upswings and downswings, which they define as periods of price rises and falls that last for three years or longer.
The authors found that upswings have been far more common than downswings across the 47 profiled countries, accounting for nearly 80% of the periods in advanced economies. Long-term growth in the Australian housing market was the most persistent upswing of all.
“The upswings lasted on average 13 years; with the longest one, in Australia, still continuing after half a century,” BIS study said. “By contrast, downswings accounted for only 8 per cent of the advanced economy sample; they lasted on average five years, and the longest one, in Japan, lasted 13 years.”
According to the study, from 1961 to 2016, Australian house prices have grown by an average of 8.1% annually in real or inflation-adjusted terms. This is the sixth highest growth rate among developed countries.
Since 1961, the cumulative gain in Australian property prices has been an astonishing 6,556%. That compares with a cumulative 1,332% rise in house prices in the United States over 47 years.
The authors acknowledged that their data was “unbalanced,” as it spans varying time periods, depending on the country. Even so, it highlights very strong growth in property prices over multiple decades.
“Is housing a good long-term investment? Our data suggest that the answer is an unqualified “yes”: real house prices increased on average by close to 7% per annum in the sample of 20 advanced economies for which there are 45 years of data on average,” the BIS study said.