Priced-out renters who bid aggressively at auctions contributed to the recent boom, according to experts.
While lending standards and recent rate cuts assisted the recent growth in housing values, the rising population put pressure on housing supply, making rents increase, according to economist Trent Saunders and senior research manager Peter Tulip.
The rising rental prices then led to more renters buying properties because the cost associated with the purchase was more within reach, according to Trent and Tulip’s paper, A Model of the Australian Housing Market, presented at the Economics for Better Policy forum.
Higher immigration numbers since the mid-2000s pushed house values up, with tighter vacancy rates meaning rents increased as more people competed for a rental, according to Tulip.
“An extra 1 million people has had a modest effect on housing supply but a huge effect on demand,” Tulip said.
Priced-out renters intending to buy would then bid aggressively at auctions, pushing up prices.
“When user costs (home buying-related costs including council rates) are above rental yields, potential home buyers leave the market and they don’t buy or they bid conservatively,” Tulip said.
However, while renters buying homes affected property prices, the impact was smaller than of interest rates, according to Tulip.
Lower interest rates, particularly since 2011, have helped the country’s market to grow, including in cities like Melbourne and Sydney, Tulip said.
