Economists are changing gears yet again on the reasons behind increasing housing prices.
Many economists have taken to arguing in recent years that governments should stifle soaring housing prices by opening up more land for development.
Now, Reserve Bank of Australia’s (RBA) head of financial stability, Luci Ellis, has punched a hole in that argument. In a September speech, she said RBA research has found that when it comes to explaining property prices, the supply of housing stock matters much less than location.
“The physical reality is that the supply of good locations is more or less fixed in the short term,” says Ellis, “so any sizeable boost to demand cannot be fully absorbed by more supply.
"The newly built property is simply not the same as the existing stock … Many have observed that Australia has plenty of [land]. But I think the lesson of past booms, as well as recent times, is that it’s place – location – that really matters.
"If we think back to boom–bust episodes of the past, whether in land for new development, railways or prime office buildings, in every case you can see people trying to get their hands on the best locations, to take advantage of whatever future economic outcomes they expect.”
This article is from the November issue of INTHEBLACK