Housing demand won’t push prices up

By Darryl Stringer • Jul 21st, 2008 • Category: Property Prices

A lot of agents and others have suggested that a rising population means a demand for more housing, and that this automatically means that property prices will continue to go up. However, independent economist Dr Ed Shann disagrees, saying that house prices in Australia have fallen in the past, and that the current high house prices combined with high interest rates changes the game:

“… underlying demand is a theoretical concept using long-run trends in population growth and household formation. In practice, high house prices mean kids stay home longer, rather than buy new housing and students rent houses together rather than separately.

Actual demand for new houses is currently below underlying demand.”
- Ed Shann, “Debunking housing myths”

He goes on to suggest that financial pressures can force investors and holiday house owners to place their houses on the market, and that house prices will need to fall until they are closer to the value of other assets. I have to agree, as the general property market seems to have gone about as high as it can go based on current median wages, and rents are yet to catch up to property prices so the demand for investment properties will not be as high as it was earlier this decade.

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