The Australian housing market is in a state of flux, with the International Monetary Fund’s (IMF) new report highlighting that the country is hurtling towards a correction which could burst the property bubble. The research found that Australia is one of the most “misaligned” housing markets in the world, with some of the most unaffordable housing prices. In response to this, the Australian government has implemented a number of measures in an attempt to cool the property market and prevent a housing bubble.
The report states that Australia’s housing market has been experiencing a long-term price increase, which has seen prices increase by over 60% in the last decade. This has made housing increasingly unaffordable for many Australians, with the median house price now eight times the average annual wage. This is well above the average for advanced economies, where the median house price is usually no more than five times the average wage.
The report also found that the Australian housing market is particularly vulnerable to a correction due to its high levels of debt and the reliance on foreign investment. The IMF’s research found that the ratio of household debt-to-income in Australia is the highest of any developed economy. This means that households are increasingly reliant on foreign investment to help them service their debt, and if this investment were to suddenly dry up, it could lead to a sharp correction in house prices.
The International Monetary Fund (IMF) has cautioned that housing markets in developed countries, such as Australia, could possibly experience a correction after the extraordinary growth seen in 2021, with indications already emerging of a decrease in prices.
“In most cases, severe economic recessions have been associated with the more pronounced episodes of housing price corrections, known as housing busts, which have taken place throughout history in various shapes and degrees of severity,” the report stated.
In the Asia-Pacific region, Australia and Japan had the two highest “overburden rates” compared to the OECD average, leading to them being publicly criticized for their poor performance.
Australia received specific criticism for its housing market, along with New Zealand, Canada, and Hong Kong, for having the most disproportionate ratio of income to house prices and rent in the world.
