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Is the Australian housing market in a bubble?

Justine Wang (Macquarie Graduate School of Management, Macquarie University, Sydney, Australia)
Alla Koblyakova (Department of Property Management and Development, Nottingham Trent University, Nottingham, UK)
Piyush Tiwari (University of Melbourne, Melbourne, Australia)
John S. Croucher (Macquarie Graduate School of Management, Macquarie University, Sydney, Australia)

International Journal of Housing Markets and Analysis

ISSN: 1753-8270

Article publication date: 12 April 2018

Issue publication date: 21 January 2020




This paper aims to explore principal drivers affecting prices in the Australian housing market, aiming to detect the presence of housing bubbles within it. The data set analyzed covers the past two decades, thereby including the period of the most recent housing boom between 2012 and 2015.


The paper describes the application of combined enhanced rigorous econometric frameworks, such as ordinary least square (OLS), Granger causality and the Vector Error Correction Model (VECM) framework, to provide an in-depth understanding of house price dynamics and bubbles in Australia.


The empirical results presented reveal that Australian house prices are driven primarily by four key factors: mortgage interest rates, consumer sentiment, the Australian S&P/ASX 200 stock market index and unemployment rates. It finds that these four key drivers have long-term equilibrium in relation to house prices, and any short-term disequilibrium always self-corrects over the long term because of economic forces. The existence of long-term equilibrium in the housing market suggests it is unlikely to be in a bubble (Diba and Grossman, 1988; Flood and Hodrick, 1986).


The foremost contribution of this paper is that it is the first rigorous study of housing bubbles in Australia at the national level. Additionally, the data set renders the study of particular interest because it incorporates an analysis of the most recent housing boom (2012-2015). The policy implications from the study arise from the discussion of how best to balance monetary policy, fiscal policy and macroeconomic policy to optimize the steady and stable growth of the Australian housing market, and from its reconsideration of affordability schemes and related policies designed to incentivize construction and the involvement of complementary industries associated with property.



The authors would like to acknowledge the substantial contribution made to this research by the late Professor Tom Valentine. His valuable insights and suggestions are greatly appreciated. The authors thank Professor Robert H. Edelstein from the Hass School of Business, University of California Berkeley for comments that greatly improved the manuscript. This research was supported by CoreLogic RP Data. They have supplied many key property data directly to the research committee. The authors thank their colleagues from SIRCA who provided direct access to CoreLogic RP Data, which significantly facilitated the research. They thank their industry sponsor SAMLoans supports.


Wang, J., Koblyakova, A., Tiwari, P. and Croucher, J.S. (2019), "Is the Australian housing market in a bubble?", International Journal of Housing Markets and Analysis, Vol. 13 No. 1, pp. 77-95.



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