Fundamentals of House Price Inflation: Single Eye for the (Straight) Melbourne Guy Edition
Previous posts have noted the convergence in capital city house prices with those in Sydney and suggested, as has RBA Governor Macfarlane, that internal migration is one of the equilibrating factors at work. The latest ABS release on regional population growth is consistent with this view, as reported in The Australian:
SYDNEY’S population growth is lagging behind that of Brisbane and Melbourne, with fresh evidence people are abandoning the nation’s largest city to escape inflated property prices and reduced job opportunities.
Australian Bureau of Statistics figures released yesterday show Melbourne and Brisbane outstripped Sydney’s population growth rate last financial year.
The figures are further evidence the NSW economy has slowed, with Melbourne attracting a net 41,300 people last year, a growth rate of 1.1 per cent, compared with Sydney’s 29,800, or 0.7 per cent.
Brisbane remains the fastest-growing city, with a growth rate of 1.9 per cent, while coastal regions continued to lure those in search of a sea change…
The lower growth rate came despite 37,000 migrants arriving in NSW during 2004-05.
However, 26,000 people left NSW for another state during the same period.
ABS statistician Andrew Howe said Melbourne had been growing faster than Sydney since 2001.
The figures show southeast Queensland continues to boom, growing by 53,300 people, or more than 1000 a week.
The Australian report (channeling the tabloid style of the SMH), goes for this supposedly illustrative vox pop:
Management consultant Janet Martin is among those making the shift south. Having lived in Sydney for 10 years, Ms Martin decided six months ago to move from Annandale in Sydney’s inner west to South Yarra in Melbourne’s inner east in search of a more vibrant culture and cheaper housing.
Ms Martin, 34, said the increased proportion of single men in the city had proved an added bonus. She had spent the last year and a half in Sydney single, but found a boyfriend within two months of moving to Melbourne.
“All I know is now I have a boyfriend who’s my age, who has two cats and wants to make babies,” Ms Martin said.
Increased proportion of straight men perhaps! For the record, the median Sydney house price actually rose 1% in Q4, consistent with the argument I made some time ago that Sydney house price growth would bottom relative to trend by the middle of 2006. But as the ABS release shows, it is the differences in annual growth rates among the capital cities that are the more interesting story.
posted on 24 February 2006 by skirchner
in Economics
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Comments
You have claimed many times here that the housing market does not drive the economy, rather “broader economic developments” drive the housing market. What are the “broader economic developments” that created the housing boom (and subsequent bust) in NSW?
Saying that house prices are falling in NSW because people are leaving to escape the high house prices is a circular argument. You may as well say high house prices make house prices fall.
Posted by .(JavaScript must be enabled to view this email address) on 02/24 at 04:56 PM
To say that there is bilateral causality between house prices and internal migration is not a circular argument.
Broader economic developments means just that…everything matters, not just the one factor pundits like to trot out because it’s a nice simple story.
Posted by skirchner on 02/25 at 02:55 PM
So high house prices cause low house prices (as people leave NSW for Qld) which results in higher house prices in Qld, which means people move back to NSW where the house prices have fallen?! In other words, house prices drive house prices in a never ending cycle?
Can you please name just one of these “broader economic developments”? I suggested that the strong AUD is hurting exporters and manufacturers in NSW and Victoria (I know this becuase I am one) but you have not been more specific that “broader economic developments”.
If you can’t suggest anything, then I can only conclude that housing cycle is driving the economy in SE Australia and not vice versa.
Posted by .(JavaScript must be enabled to view this email address) on 02/25 at 03:13 PM
The exchange rate is certainly one factor. As noted previously, the AUD real effective exchnage rate is at very high levels. Although it hurts all exporters, this is more than offset by rising prices in the case of the commodity exporters.
Posted by skirchner on 02/25 at 04:34 PM
Rising commodity prices is little consolation if you’re not in the resources sector. Other exporters have simply had to wear the dramatic rise in the Aussie dollar over the course of 2002-2003, with little relief since.
In early 2002 one US dollar earned overseas would buy you two Australian dollars. Buy the end of 2003 that US dollar would only buy you only $1.20 Australian. Beleive me, such a huge reduction in revenue is difficult for any business to cope with. Its far more difficult than (say) a modest interest rate rise.
There was a time when Australian businesses were encouraged to export, but for the past two years its been a mug’s game. I worry that the resources boom and strong dollar will wipe out a generation of Australian exporters and discourage others from exporting. This will leave us in serious trouble when the resources boom ends, as it inevitably will.
Posted by .(JavaScript must be enabled to view this email address) on 02/27 at 11:06 AM