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Australian house prices are set to fall … and it’s all about supply and demand.
There is not much doubt about that, but the big questions are how substantial the falls will be and how long the price declines will last?
The supply of dwellings is increasing in line with an extraordinary construction boom. Australia is building dwellings at a record level. At the time, underlying demand for dwellings is falling as population growth has slowed to its weakest pace in close to a decade.
Let’s look at the dynamics.
Over the course of 2015, Australia’s population rose by 326,100 people. This is well down from the peak level of almost 460,000 in 2008, 422,000 in 2009 and even 400,000 in 2012. In terms of the new demand, 326,100 people will require around 142,000 new dwellings to live in based on the estimate by the Australian Bureau of Statistics of 2.3 people occupying each dwelling. In 2014, with population growth of 328,500, 143,000 extra dwellings were needed.
It was released today and it outlines a range of critical issues relating to income and wealth inequality, but the key issues for me related to how reductions in inequality can be positive for economic growth.