Factors Effecting House Price Growth in Australia

Given the lack of correlation which exists between population growth and house price growth, what are some possible factors effecting house price growth in Australia.

The general economic circumstances of a region as well as interest rates are factors which can effect house prices. Following is the ten year interest rate forecast according to the Bank SA economic outlook report.

Other factors also exist. The 2007 3rd Annual Demographia International Housing affordability Survey highlighted what it believed to be a key factor which is thought to be responsible for escalating house prices in Australia. This factor is Land use Planning.

Perhaps the best way to describe the effect of land use planning is through the use of an example. The following table provides the relevant information.

United States of America
Area (Km2)
Approximate Population
21 Million
298 Million
Approximate median
house price in final
quarter of 2005
$396,900 (Aus)
$213,900 (US) or
$305,500 (Aus: assuming
a US:Aus 0.7:1 exchange

The above data indicates that despite Australia and the United States of America having relatively similar land areas and despite the US population being approximately 14 times larger than that of Australia, the median US home price in 2005 was still significantly less than that of Australia even after taking exchange rate into consideration.

It has been estimated that approximately 0.3% of Australia has been developed. To reduce urban sprawl and lessen the burden on infrastructure, Urban boundaries have been established in many of our major cities. Following is an example of the Adelaide urban boundary.

In the 2007 3rd Annual Demographia International Housing affordability Survey, it was essentially stated that through the use of various planning strategies such as Urban growth boundaries, non-geographical artificial restrictions on land have been put in place. These restrictions together with housing demand have driven house prices upwards. In parts of the United States where these restrictions do not exist, house prices have not escalated as dramatically as in Australia.

When taking planning policies into consideration (including land release) it becomes apparent that either by design or default, the planning policies put in place from city to city can have a significant impact on property prices. This is consistent with the striking similarity which exists in capital growth between cities despite vast differences in population growth.

The result of this is that many markets exist throughout Australia which can provide excellent opportunities for property investment. The key to successful property investing, however, is knowing what to buy, when to buy, where to buy and how to buy.

The following section will focus on the Adelaide market and will suggest what factors are expected to come into play which could significantly affect home prices here.