How long can house prices keep rising?
The median house price in Australia is sitting at $845,000, up 9 per cent on this time last year. This price represents a house on a block of land and to put that into perspective, 72 per cent of all the homes in Australia are a house on a block of land.
The median dwelling price in Australia is $785,000, up 8 per cent on this time last year. This price represents houses on blocks of land as well as townhouses and units.
What we are seeing is the price of housing in Australia has increased even though interest rates have risen by 4.25 per cent in the past 2 years.
The reason for this is that we aren’t building enough stock. We need to be building at least 240,000 houses a year and yet we are only building 160,000.
Hence the housing crisis continues to get the airtime it’s getting.
So, to the question everyone is asking – will the housing crisis in this country ever end?
I’m an optimist, so I’m of the view that we will eventually solve the housing crisis.
We have two options:
- Grow our population at a slower rate, or at least the rate we can build housing; or
- Find a way to build more housing.
It will have to be the latter because no politician is going to reduce our population growth by a meaningful amount. To do so would mean failing to bring in enough people to replace our ageing workforce.
If we did that, we would have to cut back on the pension or healthcare benefits afforded to Australians. Not exactly a promising election campaign, is it?
So, finding a way to build more housing it is.
I am confident our governments and the building industry will find a way to make this happen sometime in the next few years. Where we will inevitably land is in a country where Australians build and live in a denser way than we do today.
We are a small and relatively young country by comparison to our overseas counterparts and housing a growing population is not a new challenge.
The densest city in Australia is Melbourne which has about 5 million people spanning 10,000 square kilometres. In other words, Melbourne houses 500 people per sq km.
The densest city in Canada is Toronto which has about 6.2 million people spanning 5,900 sq km. In other words, Toronto houses 1,050 people per sq km – more than double that of the densest city in Australia.
As many as 72 per cent of Australians live in a house on a block of land while 39 per cent in people in Toronto live in a house on a block of land.
By the time my one-year-old is my age, I would expect that the Australian demographics will look similar to those of our Canadian friends.
One of my best friends lives in Toronto – it’s an extremely liveable city and perhaps more importantly, you don’t get the impression of people living on top of each other as you might expect the case to be.
For context, Greater London spans 1,600 sq km and accommodates a bustling population of about 5,600 people per sq km and the Big Apple (New York City) boasts 10,700 people per sq km.
I wouldn’t be surprised if dwelling prices don’t moderate over time as we transition to denser living.
However, that doesn’t mean house prices will do the same.
This is why land near capital cities in Australia has been just about the best investment you could have made in the past 50 years and it will be for the next 50 years to come. Trust me!
