Download files
Abstract
This thesis constructs, principally from primary sources, a long term time series for house and land prices for Sydney and Melbourne, and house price and rental yield series for Australia. These new series span the period 1880-1965 and give an historical perspective beyond the period from 1970 for which existing house price time series begin for Australia and for most of the world. The price series indicates that the modern experience (i.e. since the 1970s) of a significant upward trend in real prices differs markedly from the experience
in the first half of the 20th century when house prices moved very little. The thesis then takes several approaches to explaining the apparent shift in direction in the mid 20th century. The first approach examines house prices in terms of demand and supply variables. Urban theory says that demographic and income factors are critical. However, assessed over this long time span, these demand factors do not offer a satisfactory explanation. Additionally, it is found that there is no cointegrating relationship between prices and income. Rather, it appears that supply factors have probably been the pivotal influence in
explaining the shift in direction, consistent with a growing literature which focuses on the role of regulation and other constraints on supply. In Australia’s case, government policies imposing capital contributions on the cost of land appear to be a major factor. The second approach taken is to view housing in terms of asset pricing as more typically applied to the equity market by Campbell and Shiller (1988) and others. A central debate is whether or not there has been a structural fall in the equity yield and given the parallel fall in the house yield, this question is posed for housing. The thesis finds that tax and other factors can explain a structural decline in the housing yield. The house rental yield appears to be a better predictor of future rental growth and a negative predictor of future returns.