A recent International Monetary Fund (IMF) report has illustrated what many Aussies already know - Australian property is expensive. In fact, according to the latest IMF Global Housing Watch, A
ustralia ranks as the third least affordable place in the world to buy a house, behind only Belgium and Canada. However, even though property prices are out of whack with both incomes and rents, both the IMF and Australia's Reserve Bank are quick to observe that high prices do not automatically lead to a market crash. In the report, 27 OECD countries were examined, with property prices compared to historic averages and analysed in relation to incomes and rents. ; Australia placed third among developed nations on the ratio of house prices to incomes, and fifth on the measure of house prices to rents. ; The most affordable place to buy property in 2014 is Japan, followed closely by Korea. ; Both of these nations recorded negative deviations close to 40 percent from historic averages, with Germany third at just under -20 percent followed by Estonia and the United States.
In terms of the least affordable countries, Belgium was way out in front with an almost 50 percent historic deviation, followed by Canada at roughly 35 percent. ;The current ratio of housing prices in Australia to average incomes was recorded at 31.6 percent above the historic average, with New Zealand, France, and the United Kingdom not far behind. ; In terms of the ratio between property prices and rents, Australia came in fifth behind Canada, New Zealand, Norway, and Belgium.
While Australia was among the least affordable nations, we are certainly not alone when it comes to expensive house prices. ; 14 out of 24 OECD countries examined in the IMF report currently have above-average house price to income ratios, with 19 of 27 experiencing above-average house price to rent ratios. ; Global house prices are creeping up to pre-2007 levels in many places, with housing affordability generally worse in nations like Australia where the property market did not collapse to the extent observed by other nations. ;
According to the deputy managing director of the IMF, Min Zhu, “boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises.” ; Zhu notes that “in the long run, the price of houses cannot stray too far from people’s ability to afford them – that is, from their income”, adding “the ratios of house prices to rents and incomes are thus often used as an initial check on whether house prices are out of line with economic fundamentals”.
While messages like these may serve as a warning to Australia and other markets deemed unaffordable by global standards, both the IMF and Australia's Reserve Bank have made it clear that high prices do not always point towards a market crash. ; "In some cases, this more detailed look suggests much more modest overvaluation than indicated by the house price to income and house price to rent ratios," said Dr Zhu, adding "One example of this is Belgium, where the IMF concluded that despite the high valuation ratios, risks of a sharp correction of real estate prices appear contained."