OK, so I think we would all agree that Australian house prices are overvalued. Austrian economists would argue that there are two major factors that are contributing to it: 1) On the Demand side - The RBA setting interest rates lower than the free market rate discourages saving and encourages borrowing. This leads people to take bigger loans and invest more in the housing market than they would otherwise. 2) On the Supply Side - Supply is artificially restricted by government intervention, such as zoning laws, regulations, red tape, green tape, and locking land up. All of which restrict further development and prevent supply from meeting demand. My questions are: 1) Is there any way to estimate what the free-market price of housing -should- be? and; 2) What proportion of the overvalued prices are due to government interventions in the demand vs the supply side of the market?
Posted on: Thu, 18 Sep 2014 11:27:44 +0000
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