Economists Lindsay David and Philip Soos have criticised politicians and the housing industry for perpetuating the myth of housing shortages in major capital cities, reports Perth Now.
They both assessed that the country is also on track for a housing collapse similar to what transpired in the US and Ireland because of an oversupply of housing. The “epicentre” of the collapse, David and Soos claim, will be in Melbourne as rents have not increased substantially for the past five years.
A similar collapse in Perth will be seen due to the failure of house prices to increase substantially in WA in recent years.
Both economists also agree that the oversupply is particularly more evident in Victoria.
“Melbourne is primed to become the epicentre of a legendary housing market crash due to the combination of a staggering boom in real housing prices (178%),” the submission says.
“Perth is also in a serious predicament following price stagnation and substantial net income losses since the market peaked in (the first quarter of 2007). On average, investors purchasing after the peak have lost in terms of both prices and rental income.
“Other capital cities will experience a downturn, though not as large in percentage terms as Melbourne or Perth.”
Even more alarming is that both David and Soos believe the housing bubble is worse than those seen in the 1880s, 1920s, mid-1970s and late 1980s.
“These metrics point to the beginning of the housing boom in 1996 and peaking in 2010, though the latest booms in Sydney and Melbourne could result in posting new peaks in terms of the (price-to-rent) ratio,” they wrote.
“Housing prices across all capital cities remain grossly inflated relative to rents, income, inflation and GDP. What event or set of events triggers the beginning of the end of the housing bubble is not yet known.
“A bloodbath in the housing market, however, appears a near certainty due to the magnitude of falls required for housing prices to again reflect economic fundamentals. The largest residential land market bubble on record is truly incomparable and dwarfs earlier speculative episodes in the commercial and industrial land market.”
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