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Housing market in Australia: bubbles or not and burst or not?

Comments on Gavin Wood and Rachel Ong "The real reasons negative gearing on housing should be phased out", 23/06/2015

I think some of the comments so far have well reasoned arguments against the remove of negative gearing, given housing investment is investment after all and investment should be allowed to deduct costs given investment in real estate is part of that investor's activity.

Another point is concerned with ABS finance statistics. Is that net or gross financing/Borrowing? Compared to owner home purchase, investors new borrowing is likely to contain a significant refinancing. If using net borrowing, the share of investment borrowing may be lower than the current indicator, although I have no idea how the financial statistics is done by ABS.

Thirdly, one of the commentators has listed a number of reasons, though no quantification of the contributions of each one. For example, how much is the effects of foreign buyers of Australian properties? Without knowing those individual effects, the discussion of this article is to a large degree hypothetical, unfortunately.

Further, there are strong implications for whether housing bubbles will burst or how rapid and to what degree any burst will occur. My own feel is that the are bubbles in Australian housing, but they can be sustained much more easily than in many other countries because of the following factors:

  1. Australia is located in Asia where there billions of population and population density is very high and land expensive
  2. Australia is large in land and small in population
  3. The policy allowing foreign investment in real estate invites foreign investments particularly from Asia where there are billions of population and they are growing very rapidly in income and they have scarce and extremely expensive land

The external factors means that the Australian housing market cannot be simply judged by Australian income alone. Australian housing may be bubbling based on Australian income levels, but that indicator in not particularly helpful unfortunately. In another word, Australian housing bubbles can be sustained by external factors.


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