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Economics Explainer: Housing Boom (Part 2)

 Visual courtesy of Elena Koskinas

 

 

Welcome to our explainer on the housing boom - Part 2! If you missed Part 1, you can read it in under 3 minutes, here

 

In Part 2, we'll be covering what exactly caused the downfall of the housing boom - the bust. 

The Bust

 When that housing bubble bursts on you

 

Some people refer to the property boom as a ‘housing bubble’ - meaning it will definitely and suddenly burst. It's true that there are some signs that the housing boom has ended, and that house prices are decreasing at a rapid rate - these trends are likely to continue into next year too.

 

Remember (c) in Housing Boom (Part 1), where the population of Australia was growing too fast for the property market? Now, housing supply is actually catching up with increased demand. There's been a massive increase in the construction of new apartment blocks and houses, so there are enough homes to go round, and property prices have started to decrease.

 

 In other words, unlike in the visual provided above, you don't need to fight for limited housing anymore 

 

Also, remember what we said about people borrowing money from the banks to buy more houses? Well, the 2018 banking Royal Commission found that banks had been letting too many people borrow money. Too many people borrowing money = too many people buying houses = too much demand for houses = housing boom. But since the Commission, the government has made it much stricter for the banks and for people wanting to buy money. So now, it's: fewer people borrowing money = fewer people buying houses = not as much demand for houses = housing bust.

The Result

 

Fortunately, economists don’t expect the housing situation to cause a major financial crisis. Overall, Australia’s economy is doing pretty well, and measures have been taken to try and appropriately tackle this property boom/bust situation.

 

The decades-old idea that property is a “safe” investment that’s guaranteed to go up in value over time is slowly being eroded. But, most people are hopeful - predictions expect house prices to stabilise next year, and then continue on their steady way… upwards.

 

Get it? Because the movie was called "Up"? And he's going upwards? Get it?

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