House prices consistently grow faster than economic growth, both across countries and over time, according to a new report, Understanding the World Housing Boom since 1970.
The report, by James Kahn of the University of Pennsylvania, was released by the Australian Reserve Bank in December last year as part of a series of workshop papers.
It examines housing prices since 1970 across 18 countries including Australia.
Prices in all but three of the 18 countries were found to have grown faster than inflation from 1985 to 2007, ranging from 50 per cent to 350 per cent. From 1970 to 1985 all but one country showed substantial growth (over and above inflation).
Australian home price growth, adjusted for inflation, sits ‘in the middle’ of the 15 countries that showed house price growth from 1985 to 2007.
The paper attributed this growth to consumers choosing to place more of their increasing wealth into housing than other (investment) avenues.
