Explain to me: Will house prices ever be reasonable again?

It’s no secret that property prices in Australian capital cities have gone through the roof.

So will houses ever be affordable again?

Five years ago, a one-bedroom apartment in Sydney would set you back about $300,000. Today? You’d be looking at more than double that — with a median price of about $610,000, according to realestate.com.au.

So what’s going on? And why do people keep blaming a “housing bubble”? (Also, what even IS a housing bubble? And while we’re at it, why do experts keep talking about whether it will “pop”?)

What is a ‘housing bubble’, and are we in one?

A housing bubble is a period of seriously high house price growth, followed by a price drop back to or lower than the point where the growth started.

It’s actually very hard to know if a bubble exists until it “pops” — because if no fall eventuates, then by definition it’s not a bubble. (The rising property prices might have just been due to basic supply and demand, instead.)

A few indicators show a bubble can currently be seen in Melbourne and Sydney right now: low interest rates, more investors in the market and a sharp rise in house prices, according to news.com.au.

But there’s actually no consensus on whether Sydney and Melbourne are in a bubble. In fact, social demographer Bernard Salt believes investors shouldn’t buy into the hype at all.

“I am not convinced that there is a housing bubble,” he tells Mamamia. “I think that Sydney house prices were depressed for many years and I think in some respects, this is just catch-up.”

What’s causing these high property prices?

Urban Geographer at the University of Melbourne Dr Kate Shaw tells Mamamia there’s no simple answer. But she says one factor is local and overseas investors buying into the Australian housing market “not for places to live, but properties to trade.”

Many local investors, encouraged by tax concessions like negative gearing, are buying properties as investments rather than personal dwellings, for example.

“The upshot of all this is that there is effectively an infinite level of demand for housing in our major cities,” she says. “That keeps pushing prices up.”

Mr Salt says strong levels of population growth in both Melbourne and Sydney are also driving up property prices.

“Sydney is a global city, like London, New York, Paris, and as it is drawn further into the role of a global city… it attracts a global workforce with a capacity to pay global prices,” he says.

“Melbourne is similarly a global city… I think that the current price push simply reflects the greater internationalisation of those markets.”

Will the housing bubble ‘pop’ soon?

“Probably not, given the high level of demand,” Dr Shaw says.

While an oversupply in any part of the housing market (for example, too many high-rise apartments) might stabilise prices for a bit, she predicts property prices in Australia will remain strong “unless there’s a huge credit crash”.

Plus, a significant drop in prices is unlikely as long as overseas investors keep buying here, she says.

Related: The emotional stages of buying a new house.

“It takes a lot to actually push down property prices,” Mr Salt adds. “It takes a recession to do that.

“I don’t think Australia is on the edge of a recession, so I’m still confident that due to strong population growth there’s still a rising demand [for property].”

Does this mean I can’t buy property?

Not really. You just need to be selective about what — and where — you buy.

“There is actually a bit of stabilisation in the high-end apartment market now, because of all the construction in inner-Melbourne and Sydney, so if you can afford it now would be a good time to buy,” Dr Shaw explains.

“If you can buy a place to live, good for you – you’re lucky, and you should do it as soon as possible because prices will not significantly come down in any segment of the market.”

Mr Salt said you can still find pockets of affordable housing in Australia.

“You can look for property on regional cities, if your employment is such that enables you to move to a regional city. Or you could move to a place like Adelaide that does not have the same price pressures,” he says. “Or you could move to, frankly, the less glamorous parts of our cities. Out west, in Sydney, or out-west in Melbourne, places like Werribee.”

He believes it’s still wise for young Australians to invest in Australian property.

“Have faith in Australia,” he says. “We are 24 million people. By the time you pay off your mortgage, there will be 40 million people in Australia. That’s another 16 million people… who will compete for our property.”

“The bottom line is that if you are thinking of investing for a lifetime, that is 25 years, at the age of 30, Australia is a better bet than Germany or France or Japan where populations are static over that timeframe. We are on the edge of a major engine of economic growth and development region – South-East Asia. You put all those together at a high level, you’d have to say, it’s not a bad proposition.

“In 2045, 2035, and 2025, Australia and Sydney and Melbourne and Brisbane will be bigger and stronger, more valuable places than they are today, just as these cities and property markets are stronger and more valuable than they were in the 1990s.”

Is there anything else I need to consider?

Dr Shaw urges readers to consider the ethics of buying an investment property, rather than a property to live in.

“If you buy an investment property and take advantage of the national government’s tax concessions… you’re part of the problem that is keeping your lower-income friends out of home-ownership.”

Rather than investing in property, she says, you might consider “investing in something more productive – shares in a company that you think is doing good work and needs your support, for instance.”

Food for thought.

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