Supposedly Aussies love property. I’m not so sure.
A lot of people say that ‘Australians have a love affair with housing’, and that’s why house prices tend to be a bit higher than in other countries.
But that’s a little unsatisfying to me. It kind of says to me that Australian have some irrational adoration of property, (even though he’s clearly no good for you girl.)
And the trouble with the love-affair story is that love-affairs end. If there’s no basis for our connection to real-estate, then it can turn on a dime right?
And it kind of implies that other nations don’t love their houses. Like the Canadians… who like to live in boxes. I’m not sure we have such a different attitude to housing –either as a place to live or as an investment class.
So while I agree that Australia is different, I think simply pointing to some sort of irrational love-affair is just lazy analysis.
And the truth of it is there are some important differences between Australian and international property markets, and the better we understand these, the better we can understand where property’s going.
The first is a peculiar shortage of land.
We still think of ourselves as a ‘land of sweeping plains’. While it’s true that we do have a lot of space, and in total one of the lowest population densities in the world, most of that space is empty.
In fact, we cram our selves into cities along a very narrow coastal strip, and as a result we’re actually one of the most urbanised countries on earth.
Almost 60% of us live in cities with populations of more than one million. The only countries out there with higher proportions are Japan, Hong Kong and Singapore – countries famous for being tiny.
And we know that, across the world, real estate prices are a lot higher in bigger cities. So if we have more of us living in big cities, that’s going to push average house prices higher.
And Australian property makes a lot more sense if you think of us as a relatively small country – which is closer to the practical reality.
The other interesting point is that while we concentrate ourselves in big cities, these cities are geographically large.
That is, compared to other countries and international cities of similar populations, our capital cities spread themselves out over a much larger area.
This has a big impact on commute times. In Sydney it’s common for people to spend 2hrs+ each way in traffic. Our transport infrastructure hasn’t really kept pace with our expanding geographic boundaries.
As a result, we set up a trade-off between house prices and commute times. If you’re willing to live further out and commute for longer, you can get a cheaper house. But if you want to live close to employment hubs, then you’re going to have to pay for it.
This trade-off isn’t as pronounced in other cities, and so we end up bidding prices up, making our cities relatively more expensive.
And one of the reasons why our cities have such big footprints is that our homes tend to be a lot bigger than in other countries. Three quarters of us live in detached houses, a much higher proportion than in most other rich countries.
And the average size of a new house – 206 square metres – is a touch higher than America’s, with no other country coming close.
What’s more, our homes tend to be constructed using more expensive materials, with more thought and effort put into design.
The international comparisons that talk about how expensive Australian property is never account for qualitative differences – differences in size, materials, design, vibe.
Australian housing is just a lot better than in other countries, and that’s why it costs more.
What’s more, we just don’t build enough of it. This comes back to the tight supply of land. But as I’ve argued a few times recently, construction rates in Australia haven’t come close to keeping pace with population in recent years.
And that feeds directly into prices.
These factors, taken together, explain why the Australian property market has stood head and shoulders above the rest of the world in recent years.
And if you look at each of those, there’s nothing to suggest that any of these factors are going to reverse any time soon.
The love affair continues.
DB.