Leith van Onselen provides a compelling argument against Alan Kohler's bullish view that Australian housing is not in a bubble as values are underpinned by a...

Leith van Onselen provides a compelling argument against Alan Kohler's bullish view that Australian housing is not in a bubble as values are underpinned by a shortage of homes. Onselen writes, Basic economics tells us that policies that restrict housing supply steepens the supply curve, which makes house prices far more sensitive to changes in demand and increases the likelihood of the housing market experiencing boom/bust price cycles as demand rises/falls. He also quotes research from Harvard and the Journal of Urban Economics which conclude that tight land/housing supply leads to greater booms and busts in housing prices. Onselen reinforces how an examination of house prices against GDP growth, income growth, rents, and construction costs suggests that Australian housing has become disconnected from fundamental value. While a correction is not imminent, the overvaluation heightens risks of a disorderly unwind in the event that demand were to suddenly fall. (VIEW LINK)