Whilst the housing bubble was a global event, it is important to note that through it Australian house prices have been the most expensive � defined as the ratio of price to income � in the developed world. This is immediately apparent on examination of this graph published by the Reserve Bank of Australia (Richards 2008).
According to the RBA graph, the ratio of the median Australian house to income was roughly 5.5 at the end of 2007, having reached 6 in 2006. With the exception of the relatively short-lived housing price boom of 1988-89, where the ratio reached about 3.7-3.8, the ratio has been under 3.5 from 1985 until the Australian experience of the housing bubble commenced in 1996.
For a very long term view of Australian house price movements, as well as a discussion of the role of debt in the current bubble, readers are directed to this excellent article by Associate Professor Steve Keen (2).
Even though much of the discussion of the house price boom and bust centres on the US � where it is openly and uniformly acknowledged as a bubble that is now deflating � their ratio �only� reached about 3.7 at its peak! In other words, equivalent to 1988-89 Australia�s mini price boom, and much, much lower than our current level.
Whilst someone, or some country, must hold this position, there must be reasons specific to Australia which allowed its citizens and foreign investors to bid our prices so high. I have read arguments which suggest that we are a people that appreciate owning our own homes more than others. This, to me, seems a nonsense and grasping at straws to justify high prices.
But perhaps a common trait in us Australians, celebrated by many as a national identity trait of which to be proud, has something to do with it. That is a penchant for gambling � the common view that �Aussies would bet on two flies crawling up a wall�.
The bubbles throughout the world were marked by very significant levels of speculation on future house price increases � which became an almost fanatical view that �house prices only ever go up� � what Shiller (2005) described as a naturally occurring Ponzi scheme. Essentially people throughout the developed world were gambling that the price of houses would increase. But everybody convinced themselves that it was a no lose game. And Australians, with our penchant for �punting�, were quick to join the game!
But I do not believe for a second that Australians� penchant for gambling completely explains why our houses are the most expensive in the developed world.
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