Australian house prices are among the top five most expensive in the world across two closely watched measures, according to the International Monetary Fund.
The findings were released as IMF deputy managing director Min Zhu issued a warning that the global property market was at risk of overheating.
“House prices are inching up,” he said.
“But is this a cause for much cheer? Or are we watching the same movie again?
“Recall how after a decade-long boom, house prices started to fall in 2006, first in the United States and then elsewhere, contributing to the 2008-9 global financial crisis. In fact, our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises.”
Research from the IMF shows Australian property is the third most expensive on a ‘house price to income’ basis (compared to historical averages), while local real estate is the fifth most expensive on a ‘house price to rent’ ratio, with Belgium and Canada the only two OECD nations that topped Australia on both measurements.
Such high readings do not bode well for sustainable house prices, Mr Zhu said.
“Theory asserts that house prices, rents, and incomes should move in tandem over the long run. If house prices and rents get way out of line, people would switch between buying and renting, eventually bringing the two in alignment,” he said.
“Similarly, in the long run, the price of houses cannot stray too far from people’s ability to afford them––that is, from their income.
“The ratios of house prices to rents and incomes are thus often used as an initial check on whether house prices are out of line with economic fundamentals.”
Mr Zhu said it was time for global policymakers to start addressing the threat of “another unsustainable boom”, even if it was fraught with challenges.
“The tools for containing housing booms are still being developed. The evidence on their effectiveness is only just starting to accumulate. The interactions of various policy tools can be complex,” he said.
“But all this should not be an excuse for inaction.
“We need to move from ‘benign neglect’ to an ‘all of the above’ approach when it comes to policy choices.”
The comments come after Australian capital city house prices climbed 10 per cent in 2013 and follow a report from the IMF late last year that suggested Australia needed to be cautious on property price risks even if a bubble was not yet present.