Australia is currently facing a surge in house prices as a result of low borrowing costs and a lack of available homes.
Prompted by the pandemic, the Reserve Bank of Australia has slashed its interest rate to a record low and flooded the financial system with cash, a potent stimulus for one of the world’s most expensive housing markets, Reuters reported.
Peter Munckton, chief economist at Bank of Queensland said: “If house prices continue to go up, it will be harder for people who haven’t got a home and obviously benefit those who have. How do we make sure there is (affordable) housing? We haven’t solved the supply side problem yet and one of the issues that has been the case in Australia for a long time now is we have probably underinvested in infrastructure.”
House prices have nearly doubled nationwide and more than doubled in Sydney and Melbourne, the country’s two biggest cities, since the global financial crisis of 2007-09 but wages have lagged far behind.
As in other major housing markets, that accelerating trend has created a divide between those with substantial savings who are already sitting on piles of home equity and those who are struggling to get on the property ladder.
Sarah Hunter, chief Australia economist for BIS Oxford Economics explained: “A very low interest rate and other forms of monetary policy support have certainly driven down mortgage rates since the start of the pandemic. That has made housing more affordable for some buyers who are certainly taking advantage of it. Households have built up significant excess savings, and the shift in preferences towards detached houses has continued. Coupled with this, the supply of properties to the market remains relatively low, resulting in demand outstripping supply,” Hunter said.
That has made affordability an increasing problem for a majority of first-time homebuyers as prices have climbed beyond their reach.