Housing prices are rising due to easy credit and the higher levels of debt taken on by home owners, a property expert has warned.
The comments come after similar warnings were given by SQM Research founder Louis Christopher, who said claims the property market was experiencing a massive shortage of houses was false.
Brendan Darcy, chief executive of property information provider Hometrack, says too many analysts look at the housing supply issue and do not consider other factors putting upward pressure on prices.
“I think the housing shortage is overplayed. I don’t think people look enough at the credit market, and instead focus too much on the supply issue. It has been over-emphasised by commentators.”
Darcy points to the Government’s National Housing Supply Council State of Supply Report 2008, which notes 85,000 extra dwellings are required to ease the housing problem.
However, 9,000 of these are stated as being set aside for people who are sleeping rough, with a further 35,000 dwellings needed for people staying with friends or relatives.
Darcy has said these figures are being taken out of context, and do not represent market demand for housing. He says rising prices are not being driven by the number of homeless people searching for houses.
The issue of supply has been used by many analysts as the main reason for rising prices, which in some cases have recorded significant increases.
Last week, the Real Estate Industry of Victoria released figures showing increases of 23% in the eastern suburb of Burwood, with a median house price of $810,000. RP Data estimates the median house price in capital cities to be $410,000.
In contrast, figures released by SQM recently indicate vacancy rates are actually rising, potentially quashing the notion lack of housing is driving up prices.
The figures show Melbourne’s vacancy rate grew from 3.1% to 3.5% in December, while Brisbane recorded an increase from 2.9% to 3.4%. Additionally, Sydney rates grew from 1.7% to 2%.
Darcy says he believes housing prices are rising due to the accumulation of debt over the last decade.
“Prices have been driven up by debt. I’m sure there are pockets of suburbs and so on where the housing supply is outstripped by demand, but that doesn’t explain the overall price of housing across the country.”
“Instead it’s being driven up by the run up of debt. People will borrow as much as they can in order to get the best house they can live in.”
Darcy also says the main difference between the US and Australian economies during the financial crisis, regarding the property sector, has been the ability for banks to continue lending.
“I’m sure there have been people overextending themselves, but generally over the past 10 years credit has been available. It also hasn’t been curtailed as it has been in other countries, so you’ve had second-tier lenders continuing to lend with similar volumes as they were before the crisis.”
“This is the main difference between the Australian market, and the US and British markets, as the banks have kept lending.”
Darcy says prices, which he admits are over-heated in some instances, will only be curtailed if stricter lending criteria is introduced, which he says could occur over the next 12 months.
“The desire of people to buy a house is not going to change, that’s a constant. The only thing that will reverse that is the availability of credit. I would say that we are seeing some signs of lenders pulling back, such as the low-doc loans being curtailed and tightened lending criteria.”
“That was partially offset by the first home owner grant, but now that has passed it’ll be interesting to see if the banks lend in the same volumes this year as they have in the past.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
