The OECD says local owner-occupier buyers and investors have largely pushed up home prices in Australia. Picture: Nicki Connolly
PROPERTY prices and household debt have reached “unprecedented highs” in Australia — and a continued rise could lead to a hefty fall that “spreads to the rest of the economy”.
The Organisation for Economic Co-operation and Development made the warning in its latest Economic Survey of Australia, which states house prices have risen by 250 per cent since the mid-1990s.
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The report said prices had not only boomed, they’d increasingly outpaced incomes in recent years, “straining affordability”.
It singles out first-home buyers in Sydney as the group most affected, but recent CoreLogic figures indicate Melbourne too has affordability challenges, with dwelling prices now 7.1 times higher than gross household incomes in the city.
The OECD said local owner-occupiers and investors were largely behind Australia’s extreme property price gains, as while foreign demand was a contributing factor, it did not appear to have had a significant impact.
House prices have risen by 250 per cent in Australia since the mid-’90s, according to the OECD. Picture: Alex Coppel.
The organisation said the fact “policy-rate cuts had lowered debt servicing costs”, with most housing loans currently set at variable interest rates, had also partially driven up prices and household debt.
The report said recent figures showing price gains had “eased in most urban centres”, due to an increased supply of new housing, indicated the Australian housing market was cooling.
But it ultimately warns that “a continued rise of the market, fuelled by both investor and owner-occupier demand, may end in a significant downward correction that spreads to the rest of the economy.”
“A fall in house prices and or demand could have significant macroeconomic implications,” the report said.“Specifically, the market may not ease gently, but develop into a rout on prices and demand.”
The report follows revelations in CoreLogic’s latest Hedonic Home Value Index that the combined Australian capitals’ annual price gains reached a “new cyclical high” of 11.7 per cent in the year to February.
“The annual growth rate across the combined capitals hasn’t been this strong since the 12 months ending June 2010,”
CoreLogic head of research Tim Lawless said.“Low levels of advertised stock for sale at a time when buyer demand remains strong is creating a sense of urgency among buyers, which is adding to the upward pressure on prices.”
Melbourne dwelling values are 13.1 per cent higher than a year ago — second only nationally to Sydney’s gains of 18.4 per cent.