Australian property bubble
The Australian property bubble is the economic theory that the Australian property market has become or is becoming significantly overpriced and due for a significant downturn (also called a correction or collapse). Since the early 2010s, various commentators, including one Treasury official, have claimed the Australian property market is in a significant bubble. Various industry professionals have argued that it is not a bubble and that house prices have the potential to keep rising in line with income growth. The RBA believe that most of the recent rise in property prices since the 1980s, when interest rates  have decreased from medium term record highs to record lows, as a transmission mechanism to generate the wealth effect and stimulate the economy. A property bubble is a form of economic bubble normally characterised by a rapid increase in market prices of real property until they reach unsustainable levels relative to incomes and rents, and then decline. Australian house prices rose strongly relative to incomes and rents during the late 1990s and early 2000s; however, from 2003 to 2012 the price to income ratio and price to rent ratio have both remained fairly steady, with house prices tracking income and  rent growth during that decade. Since 2012 prices have once again risen strongly relative to incomes and rents. In June 2014, the International Monetary Fund (IMF) reported that house prices in several developed countries are "well above the historical averages" and that Australia had the third highest house price-to-income ratio in the world. In June 2016, the Organisation for Economic Co-operation and Development (OECD) reported that Australia's housing boom could end in 'dramatic and destabilising' real estate hard landing. Australian property market. The Australian property market saw an average real price increase of around 0.5% per  annum from 1890 to 1990, approximately matching CPI. Since the 1990s, however, prices have risen faster resulting in an elevated price to income ratio. In the late 2000s, house prices in Australia, relative to incomes, were at elevated levels similar to many comparable countries, prompting speculation that Australia was experiencing a real estate bubble like other comparable countries. Since then, several comparable countries have experienced property crashes. Rising house prices. All capital cities have seen strong increases in property prices since about 1998. Sydney and Melbourne have seen the largest price increases, with house prices rising 105% and 93.5% respectively  since 2009. These massive increases in house prices coincide with record low wage growth, record low interest rates and record household debt equal to 130% of GDP. This indicates unsustainable growth in property, driven by ever higher debt levels fuelled by the RBA's then chief, Glenn Stevens who began cutting rates beginning in 2011. The "Housing Affordability in Australia - Good house is hard to find" report stated that "the average house price in the capital cities is now equivalent to over seven years of average earnings; up from three in the 1950s to the early 1980s. Some factors that  may have contributed to the increase in property prices include: Influence of planning laws. Beginning in the 1980s, Australian states (who under the Constitution have control of environmental and land use issues) started progressively implementing more rigid planning laws that regulated the use of land. Planning laws often concentrated, after the 1990s, on restricting greenfield development in favour of "urban densification", or infill development. Land rationing is a system of banning development in all but designated areas, and can lead to extreme land price inflation if insufficient land is designated as allowed to be developed. The restrictive planning laws in  Australia have used land rationing systems as part of the goal of restricting greenfield development in favour of infill development, but this inevitably lead to land prices, and thus house prices, rising significantly. There is good evidence to suggest that the price of a new unit of housing is the ultimate anchor of all housing in an area, so when planning laws that implemented land rationing severely drove up the cost of new homes, all other homes followed suit. Influence of tax system. The Reserve Bank of Australia has noted that there are "a number of areas in which the  taxation treatment in Australia is more favourable to investors than is the case in other countries." The main tax incentives include tax deductions for losses on investment properties, even those that have been negatively geared, and the 50% discount on capital gains on sale of investments properties. Investors using their superannuation for property investments have a tax advantage compared to 'savers' who are effectively taxed up to 45% (the top marginal taxation rate) on income from bank interest or bonds, as superannuation contributions are normally only taxed at around 15%. The list of tax payer funded supports to the property  market are numerous Influence of banking system. The influence of interest rates and banking policy on property prices has been noted. The financial deregulation has led to greater availability of credit and a variety of financial products and options. Presently the Reserve Bank of Australia has maintained for some time a low cash interest rate policy which has also reduced the cost of financing property purchase. In addition, the easy availability of interest-only loans has also made possible for property investors to borrow to purchase a property and compounding the benefits of negative gearing. Housing costs excluded from the  CPI. One of the market distortions in the housing market relates to the calculation of the Consumer Price Index [CPI], a key metric the RBA uses to make fiscal policy decisions such as setting interest rates. One senior economist noted "The index ignores price changes in the single biggest purchase a person (or household) is likely to make in their lifetime – a dwelling″. This implies that Australia's main official cost of living measure is failing to represent actual living costs, particularly for younger Australians who may incur substantial costs of purchasing a home. Immigration to Australia. A number of  economists, such as Macquarie Bank analyst Rory Robertson, assert that high immigration and the propensity of new arrivals to cluster in the capital cities is exacerbating the nation's housing affordability problem. According to Robertson, Federal Government policies that fuel demand for housing, such as the currently high levels of immigration, as well as capital gains tax discounts and subsidies to boost fertility, have had a greater impact on housing affordability than land release on urban fringes. The Productivity Commission Inquiry Report No. 28 First Home Ownership (2004) also stated, in relation to housing, "that Growth in immigration since the  mid-1990s has been an important contributor to underlying demand, particularly in Sydney and Melbourne." This has been exacerbated by Australian lenders relaxing credit guidelines for temporary residents, allowing them to buy a home with a 10 per cent deposit. The RBA in its submission to the same PC Report also stated "rapid growth in overseas visitors such as students may have boosted demand for rental housing". However, in question in the report was the statistical coverage of resident population. The "ABS population growth figures omit certain household formation groups – namely, overseas students and business migrants who do not continuously stay  for 12 months in Australia." This statistical omission lead to the admission: "The Commission recognises that the ABS resident population estimates have limitations when used for assessing housing demand. Given the significant influx of foreigners coming to work or study in Australia in recent years, it seems highly likely that short-stay visitor movements may have added to the demand for housing. However, the Commissions are unaware of any research that quantifies the effects." Some individuals and interest groups have also argued that immigration causes overburdened infrastructure. Foreign investment in residential property. In December 2008, the federal government introduced legislation  relaxing rules for foreign buyers of Australian property. According to FIRB (Foreign Investment Review Board) data released in August 2009, foreign investment in Australian real estate had increased by more than 30% year to date. One agent said that "overseas investors buy them to land bank, not to rent them out. The houses just sit vacant because they are after capital growth." In April 2010, the government announced amendments to policies to "ensure that foreign non-residents can only invest in Australian real estate if that investment adds to the housing stock, and that investments by temporary residents in established  properties are only for their use whilst they live in Australia." Under the rules, temporary residents and foreign students will be: Failure to do this would also lead to a government-ordered sale. Several Australian Banks and lenders provide home loans to non-residents for the purchase of Australian real estate. This is also thought by some to have contributed to the increases in Australia's property prices. Government inquiries related to housing. In 2002, the government initiated a Productivity Commission Inquiry into the homes ownership in Australia. The commission's report entitled "First Home Ownership" observed "inter alia" that  general taxation arrangements [capital gains tax, negative gearing, capital works deductions and depreciation provisions] have lent impetus to the recent surge in investment in rental housing and consequent house price increases. The government's response to the report stated that "There is no conclusive evidence that the tax system has had a significant impact on house prices." In 2008, another study was commissioned – the 2008 Senate Select Committee on Housing Affordability in Australia. The report noted that "On some measures, housing affordability is at a record low. "Australia's Future Tax System" (AFTS) review, more commonly known as the "Henry  Tax Review", made a number of recommendations that would have impacted on the housing market, including: In regard to recommendations of changes to tax policy that might impact the housing market, the Government advised "that it will not implement the following policies at any stage" (excerpt of list): In May 2015, the House of Representatives Standing Committee on Economics started an Inquiry into Home Ownership. Almost two years later the announcement was made that the Inquiry had made no recommendations whatsoever. In 2017, a Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established. Hearings into  banking misconduct began on 13 March. Effect of inflated housing prices on the greater economy. Diverting capital away from the rest of the economy. Increased residential housing costs can cause excessive lending to the residential housing sector, at the expense of businesses. This can lead to "a banking system which allocated capital away from the most productive areas of the economy — business — is ultimately bad for growth, bad for competition, bad for jobs, bad for business and in the end, bad for Australia." Research conducted in overseas markets confirms that "in areas with high housing appreciation, banks increase the amount  of mortgage lending and decrease the amount of commercial lending as a fraction of their total assets. This allocation results in firms receiving reduced loan amounts, paying higher interest rates, and reducing investment." Mortgage and rent stress. Increased housing prices and therefore increased borrowings can lead to difficulty in meeting housing payments. According to Ratings agency Standard & Poor's (S&P), "Arrears for sub-prime loans backing RMBS [residential mortgage-backed securities] jumped 126 basis points to 11.45 per cent" Australian specific market factors. The Australian market had several features either singly or together are not typical in other housing markets , being;