Housing bubble has been a heat topic in Australia, which has also lead to some social issues. There are three reasons why I believe that the Australia will has the housing bubble in recent years. The Reserve Bank of Australian lowered the interest rate 225 points basing on the past two years (from 4.75 % in October 2011 decreased to 2.5% in August 2013). In my opinion, this situation is easy to cause housing bubble in Australia. In this paper, I will focus on three points to explain why I think housing bubble is happening in Australia. The first one is low interest rate, the heat rises in houses’ market and the last one is SMSF. More details of the three points will be showed in the following parts.
Lower interest rate
Lower interest rate is a point which can lead to the housing bubble in Australia. At present, the interest rate is the lowest in Australian history. Hughes. D. states that the big four Australian financial regulators have put five trillion in house property (Cited in The Australian Financial Review 21, September, 2013). In most of popular cities in Australia such as Sydney and Melbourne, more and more people have borrowed money from the bank to buy houses, because the lower interest rate is a good chance for them to invest in housing. Jabbour.F argues he does not hope the houses’ price keep rising in the following years, because the interest rate is lowest. In this case, most of people would like to borrow money to buy house under the high-risk loans, which is easy to lead to housing bubble (Cited in The Australian Financial Review 21, September, 2013).
High heat of house market
The second point is the house market is too heat, because a number of banks in Australia provide very low loan to investors’ in house property. Furthermore, more and more immigration need to buy houses. As a result, the house market is becoming very heat in recent years. At present, everything in Australia has been sold higher 10 to 15 percent than before (cited in the Australia, 2013), which is will also lead to the high price of the housing. Mazzeo states that the house market is faced with housing bubble in Australian, on account of there are too much buyers. This indicates that the supply is not adequate to reach the demand in Australia housing. So the price of house will rise very quickly, also it will get after Banks keep cautious lending standards. According to RP Data, in the city of Canada Bay, the price of house had been risen 10.3% this year and the init prices in Drummoyne (cited in The Australia, 2013). In Australia, it also has the same problem- the most buyers are the Chinese. Most of them pay higher prices than the market, as a result, the being compelled into high-risk loan. From this data, it is easy to find that the housing markets is too heat at the moment. In day of the future, there are less people to buy the house, so the price of house will go down quickly. Therefore, the house bubble is easy to happen if the house market is too heat.
The last point is Australian SMSF. Australia’s SMSF means Australia’s self-managed super fund. Heathcote.A and Bailey.M state that, for many years, SMSF plays an important role in economy, because SMSF make investors choose by themselves and retirees can control their pension to invest. In 2007, legislative has changed the related law for the people over 60 years old, when they borrow money and make property investment tax-free. Under this change, more retirees can use theirs’ pension to buy house in Australia (cited in Fairfax Media Management, 2013). Sindino argues that there is a rise in property investment by SMSF from $20 billion in 2006 to around $80 billion to 2013, which means that the rise will affect the housing market (cited in Fair Fax Media, 2013). On one hand, SMSF can help people invest flexible and help retirees get more possible income. But on other hand, it can make more people invest money to the house property. Therefore, the SMSF will also lead to housing bubble in Australia.
This paper has given out three points which will affect housing bubble in Australian in recent years. It was also the three reasons including: the first one is low interest rate, at present is the lowest rate in history, people would like to borrow money to invest than before; the second one is the heat house market, the increasing immigration prefers to buy the house rather than rent the house. In addition, most of them can pay 10-15 percent higher price (the Australia, 2013); the last point is many people can invest flexible and a lot of retired people can invest house property with tax free. Most of them prefer to invest the pension into hose property (cited in Fair Fax Media, 2013). After analyzing these three reasons, I believe that the Australia will has the housing bubble in recent years.