Wednesday, February 18, 2015

Housing glut can't stop bubbles

Lindsay David compiled data on Australian home prices recently and found that 52 localities in New South Wales had negative population growth over the decade from 2003-2013. But these places had just as much of a housing price boom as anywhere else, putting to rest once and for all the various arguments that regulatory supply constraints are a key element affecting Australian home prices.

It could be just me, but a town with a 15% population decline really can't be argued to face any sort of housing shortage, indeed arguably this housing glut was insufficient to counteract a 70% price increase over the decade.

Perhaps the answer is that the static demand-supply equilibrium model is an inappropriate tool to analyse the economics of housing.

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