Housing Fever in Australia 2020–23: Insights from an Econometric Thermometer

• Published date: 01 September 2023
• Author: Shuping Shi,Peter C. B. Phillips
• Date: 01 September 2023
• DOI: http://doi.org/10.1111/1467-8462.12523

The Australian Economic Review, vol. 56, no. 3, pp. 357–362 DOI: 10.1111/1467-8462.12523

Housing Fever in Australia 2020–23: Insights from an

Econometric Thermometer

Shuping Shi and Peter C. B. Phillips*

Abstract

Australian housing markets experienced wide-

spread and, in some cases, extraordinary growth

in prices between 2020 and 2023. Using recently

developed methodology that accounts for funda-

mental economic drivers, we assess the existence

and degree of speculative behaviour, as well as

the timing of exuberance and downturns in these

markets. Our findings indicate that speculative

behaviour was indeed present in six of the eight

capital cities at some time over the period

studied. The sequence of events in this nation‐

wide housing bubble began in the Brisbane

market and concluded in Melbourne, Canberra,

and Hobart following the interest rate rise

implemented by the Reserve Bank of Australia

in May 2022. As of March 2023, the housing

markets in Sydney, Canberra and Hobart had

broadly regained stability, while Melbourne's

return to its normal state is more gradual. In

addition, over‐corrections against fundamentals

are evident in the housing markets of Brisbane,

Adelaide, Darwin and Perth. For regular

updates on the housing markets, readers may

visit the authors' website at https://www.housing-

fever.com.

JEL CLASSIFICATION

C12; C13; E43

1. Introduction

When property prices escalate rapidly in a

manner that is detached from underlying

economic fundamentals of supply and de-

mand, the speculative phase of a real estate

bubble occurs. When this speculative phase

ends in price collapse and property prices

realign with fundamentals, a real estate bubble

has taken place. If the realignment is rapid and

substantial, such bubbles can have severe

consequences for the broader economy, af-

fecting financial stability, consumer spending

and overall economic growth (Skinner 1996;

Case, Glaeser and Parker 2000; Case,

Quigley and Shiller 2005; Caballero and

Krishnamurthy 2006; Hirano, Inaba and

Yanagawa 2015). When a bubble bursts it

can lead to a cascade of negative effects,

including a collapse in property values, wide-

spread mortgage defaults and downturns in

the construction and real estate sectors. Such

cascading economic effects were evident in

the aftermath of the US real estate bubble

when the subprime mortgage market col-

lapsed, coupled with the subsequent 2008

global financial crisis.

The impact of such events extends beyond

housing markets, often affecting banks and

financial institutions, leading to credit crunches

and broader economic downturns and reces-

sions. By recognising signs of housing market

exuberance and impending bubble behaviour,

policy‐makers, regulators and investors can

take proactive measures to mitigate risks and

implement appropriate measures to prevent or

* Shi: Department of Economics, Macquarie University;

Phillips: Peter C. B. Phillips: Yale University, University

of Auckland, Singapore Management University.

Corresponding author: Shi, email <shuping.shi@mq.

edu.au>.

© 2023 The Authors. The Australian Economic Review publishedby John Wiley & Sons Australia, Ltd on behalf of The University of

Melbourne, MelbourneInstitute: Applied Economic & Social Research, Faculty of Businessand Economics.

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