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The Real Story of Housing Prices in Australia from 1970 to 2003

Peter Abelson and Demi Chung
Macquarie University, 2006

Abstract

Despite the popular and public policy interest in housing prices, there have been few reliable published data for housing prices in Australia. In this paper we aim to provide an authoritative account of prices for houses and apartments (units) in Australia from 1970 to 2003. Where possible we draw on data from land title offices or on studies that draw on these data, but we also draw on supplementary data in some cases. The first part of the paper describes the major data sources on Australian house prices. The main body of the paper provides our best estimates of median house and unit prices and real price indices in the capital cities and in the rest of Australia along with explanations for their derivations. We also estimate how improvements in housing quality have influenced real house prices.

JEL: R31

Acknowledgements

We thank the Productivity Commission for providing us with a great deal of data on housing prices, including data from land title offices around Australia. We are also grateful to the Housing Industry Association of Australia National and to the Real Estate Institute of Australia (and to the WA Branch) for providing us with their data on house and unit prices. Thanks are due to the Walsh Bequest run by the Economics Department, Macquarie University, which provided research funds for this project. Chris Chan (Productivity Commission) and two referees provided helpful comments on a draft of this paper. However any errors are our responsibility.

In Australia, as in many countries, there have been few reliable data on housing prices.1 Until recently, public agencies published few data on housing prices and private agencies filled the gap by drawing on their own partial and usually biased data sets of residential property sales. Although the availability and quality of housing price data have improved in the last 10 to 15 years, the Reserve Bank (2004) still finds that the data are untimely and unreliable.

The aim of this paper is to provide an authoritative account of prices for houses and apartments (units) in Australia from 1970 to 2003. Without accurate data, econometric analyses and other explanations of housing prices have little purpose and may indeed be misleading. Likewise public policy based on erroneous data would be of little use. Drawing on the findings in this paper, in separate papers we have estimated an econometric model of house prices in Australia (Abelson, Joyeux, Milunovich and Chung, 2005) and reviewed the effects and public policy implications of taxation on house prices (Abelson, 2005).

In this paper we describe and assess the major sources of data on housing prices since 1970, estimate price series for the major cities and for Australia as a whole, and draw out the main findings about house and apartment (unit) prices. Section 2 describes the major data sources. Drawing on the preferred data sets, Section 3 provides our best estimates of median house and unit prices in the capital cities and in the rest of each state and the respective real price indices. We also estimate national Australian indices for house and unit prices. Section 4 estimates the effects of improvements in housing quality on house prices. Section 5 summarises our main findings.

In Australia in 2001, there were 7.1 million residential dwellings of which 75 per cent were separate houses, 13 per cent were units and 12 per cent were other forms of housing (terraces, semi-detached, town houses, etc.).2 Most housing price data relate to houses; some to units; almost none to other dwellings. The main primary and secondary data sources are described below.

Primary sources

There are three main primary sources of data on housing prices:

Government land title offices3,

● The Real Estate Institute of Australia, and

● The Commonwealth Bank of Australia.

Land title offices (LTOs) in all states and territories receive data on all property transactions based on settlement dates and are the best primary source of property price data. However, the LTOs vary greatly in their analysis and distribution of price data. Only the NSW LTO regularly publishes summary statistics on housing prices (www.housing.nsw.gov.au), but it has done so for only a few years. Other LTO’s can provide longer data series. The Victorian and South Australian LTOs can provide house price data from the early 1970s; the Northern Territory from 1980; Queensland from 1986; Western Australia from 1990.4 However, most of these LTOs supply data to other parties only on a commercial and restricted basis. None publishes summary price statistics on a regular and timely basis. Also, there are few LTO-based statistics for unit prices or for non-capital city prices.

The second main source of primary data is the Real Estate Institute of Australia (REIA). The REIA has estimated median house and unit prices in most capital cities each quarter from 1980 and provides these estimates to its members and to others for non-commercial purposes. Before the September quarter 1998, these widely cited figures were based on sales that members reported to the state or territory branch of the REIA, again based on settlement dates. These sales were a large part of dwelling sales but not necessarily representative. However the bias, if any, in the data is not known. From September quarter 1998, the REIA has obtained data for NSW, Queensland, South Australian and Western Australia from LTOs. Thus, for these states, the REIA is no longer a separate primary source and its published series of dwelling prices is based on two different primary sources.5

Since 1984, the Commonwealth Bank of Australia (CBA) has estimated median house prices based on sales for which the bank provides finance in both capital cities and the rest of each state. Unlike the other two primary series, the prices are recorded when purchase is agreed rather than at settlement. The CBA figures are published regularly by the Housing Industry of Australia. However, because of the restricted and non-random nature of the data base, the sample is unlikely to be a representative set of houses. Doubtless for these reasons, CBA housing prices are often different from other price series (for detailed differences see Abelson and Chung, 2004).

From time to time, there are other primary sources of housing price data. A noteworthy example is the publication of the prices of auction sales in the 1960s and 1970s by some newspapers. Obviously these sale figures may be poor guides to housing price levels, but they may be fair gauges of changes in levels. However, they provided the basis of the major series of house prices estimated then by a consulting company (Bis-Shrapnel). The Commonwealth Treasury draws on them for part of its (unpublished) long-run quarterly house price series.

Secondary sources

The most important secondary source of data on house prices is the Australian Bureau of Statistics (ABS). The ABS has published estimated quarterly indices for house prices for eight capital cities separately and combined in a weighted series since 1986 (see House Prices Indexes: Eight Capital Cities, Cat. No. 6416.0).6 However, the ABS does not publish actual house prices or any price information for units. For most cities, the ABS draws on a complete set of house transactions provided by LTOs. Where these data are not available, the ABS draws on REIA data.7 Unlike most other agencies, the ABS makes a partial attempt to control for quality changes by stratifying houses by area within the city and in some cases also by house size (three or four bedrooms). For Sydney, Melbourne, Brisbane and Adelaide, the ABS estimates median prices for each area using a ‘trimean’ method and after excluding outliers.8 For Perth, Hobart, Darwin and Canberra, the estimated average price is the mean of all sales in each area, excluding outliers. The Bureau then estimates a weighted average price for the cities (with weights reflecting the number of houses in each part of the sample) and the price movement between periods. However, the ABS does not control for improvements to housing in the form of alterations and additions, which are often substantial. The Bureau estimates the national capital city index by weighting the cities on the basis of finance commitments.

Some private firms or analysts also estimate housing prices usually drawing on LTO data. RBA (2004) cites two major current providers. Drawing on LTO data, Residex has reportedly estimated property prices indices for Brisbane, Melbourne and Sydney from 1978.9 Residex attempts to exclude quality change effects by basing its indices only on prices changes between successive sales of the same property. However, this reduces the size of the sample and does not allow or alterations and additions. Also, the series is subject to revision as more properties are added to the series. Australian Property Monitors (APM) estimates prices for seven capitals drawing on data from LTOs, based on the date of contract rather than date of settlement. As far as we are aware, APM has not estimated a historical price series.

In an early study of house prices, Abelson (1982) reviewed all available data and estimated quarterly house prices in the capital cities in the 1970s. This drew on official and diverse other sources, including an obscure clerk in the tax office in Tasmania who was found to have assembled quarterly house price data for Hobart. This study is still the best source for 1970s data. In 1991, consultants Applied Economics and Travers Morgan produced a major review of house prices in Adelaide, Melbourne and Sydney, which drew on data from LTOs. Estimated median Adelaide and Melbourne prices were based on all sales. Sydney prices were estimated from a 10 per cent sampling exercise on the then manual data held by the NSW VG. This study remains the main source of information on house prices in Sydney to 1990.

In preparing its report on First Home Ownership, the Productivity Commission (2004) developed house price series from 1980 for most capital cities (from 1970 for Sydney and Melbourne), which drew on several of these sources. For recent years, it drew on LTO data for Sydney, Melbourne, Adelaide and Brisbane and on REIA data for Perth, Canberra, Darwin and Hobart. The Commission published the results in graphical rather than in numerical form but provided its data along with unpublished Australian Treasury house price data (see below) to the authors. The Commission did not estimate or cite unit prices.

Another significant house price series, albeit an unpublished one, is the Australian Treasury quarterly index for house prices in Australian capital cities from 1959-60 to the present. This index is a weighted figure based on house prices in Sydney, Melbourne, Brisbane, Adelaide, Perth and Canberra. This series is based entirely on secondary sources, namely ABS data from December quarter 1985 to the present, on REIA data from 1980 to September quarter 1985, and on Bis-Shrapnel data back to 1960. This index is described and discussed further below.

In summary, there are far more price data for detached houses than for units. For some types of housing (for example semi-detached dwellings), there are no data. Most data relate to capital cities but there are some data for the rest of the states. Where they are available, LTO price data are to be preferred. However, availability varies by state. The REIA provides the longest continuous series back to 1980 (although it now draws on LTO data in four states) and the best price data for units. Only the CBA produces prices for new houses including land, but its database is likely to be biased. The ABS is the only agency that attempts to control for housing quality, but its control for quality is limited because the sample does not exclude alterations and additions which, as will be seen, substantially affect house prices. Also, the ABS publishes only nominal indices, not house prices.

In the appendix to a working paper, Abelson and Chung (2004) provide 44 tables that show in detail all the major data series that are available on house and unit prices in the capital cities and elsewhere from 1970 to 2003 from all major sources.10 In this paper, we summarise the procedures for estimating the preferred house and unit price series and provide the main results along with the detailed assumptions.

Our procedure for estimating a preferred series is to select the best set of data and then to complete the gaps for the missing years, which almost always exist, in one of two ways. Where the price data from the second best source appear consistent with the level of prices in the preferred source (i.e. they are similar in the years closest to the missing years), we use these second source data as they stand unmodified to supplement those from our preferred source. Where the price levels of the two sources are inconsistent, we splice the data. We use the price levels shown in the preferred source, but extrapolate prices in the missing years by applying the estimated percentage changes in annual prices in the secondary source. In either case, the linking of the price series is based on judgement whether to apply price levels (which embody percentage changes) or simply the percentage changes in the secondary series rather than on a formal statistical process. In addition, where only estimated mean house prices are available, we convert these to estimated median prices, usually by discounting the mean prices by 8 to 9 per cent based on data on these differences from the original sources.

Wherever land title office data are available either from LTOs or from another source that draws on LTO data, we take these data as the benchmark. As shown in Abelson and Chung (2004), from 1990 to 2003 housing prices based on the REIA and CBA series tended to rise by more than prices derived from LTO data, especially in recent years. Adelaide was the only exception. We have no explanation for these differences. On the other hand, as would be expected, where comparisons are possible, the ABS house price indices generally rose by slightly less than the other housing price indices. An exception was Sydney where the ABS index rose by more than the LTO-based index but by less than the REIA and CBA indices. This suggests that the ABS is partially successful in discounting quality effects. However, the differences between the indices are usually small and, as discussed below, all reported house prices embody significant quality changes.

Our preferred best estimates of median house and unit prices for the capital cities and the rest of the states from 1970 to 2003 are shown below. Tables 1, 3 and 5 show estimated prices. Tables 2, 4 and 6 show the corresponding real price indices, with 1990 treated as 100.0. Footnotes to the tables detail the sources and assumptions on which the estimates are based. The prices and indices that draw largely on LTO data may be regarded as quite accurate measures although we have no measure of error. Thus the Victorian and South Australian data can be regarded as quite reliable. Prices and indices that draw on other sources are likely to be less reliable. Data for Canberra, Darwin and Hobart are the least reliable.

The real price index figures for each city or state are obtained by deflating or inflating the prices (to a 1990 base) by the weighted consumer price index for all the capital cities. We estimate our Australian price indices for houses and units by weighting the estimated real indices according to the number of houses or units in each city as shown in the 1991 Household Census. For houses, the weights are Sydney (0.30), Melbourne (0.29), Brisbane (0.14), Adelaide (0.10), Perth (0.11), Hobart (0.02), Canberra (0.03) and Darwin (0.01).11 When price data for some cities, usually the smaller ones, are not available from 1970-72, we re-weight the cities based on those cities for which data are available.12 For units, the weight is much higher for Sydney (0.51). Melbourne (0.25) and Brisbane (0.10) also have significant weights. The other cities have very low weights for unit dwellings.

Table 2 also shows our estimated real annual Australian Treasury house price index. The Treasury index is a weighted average of prices in six cities: with weights drawn from the 14th CPI series namely Sydney (0.36), Melbourne (0.29), Brisbane (0.13), Adelaide (0.08), Perth (0.11) and Canberra (0.03). The annual index shown in Table 2 is the average quarterly Treasury figure converted into a real index with 1990 again = 100.

Table 1 Annual median house prices ($) - capital cities

Year

Sydney

(a)

Melbourne (b)

Brisbane (c)

Adelaide

(d)

Perth

(e)

Hobart

(f)

Darwin (g)

Canberra (h)

1970

18,700

12,800

   

17,500

     

1971

21,200

13,400

 

11,900

17,750

11,875

 

18,000

1972

23,700

15,000

 

13,225

17,500

12,600

 

20,350

1973

27,400

19,800

17,500

16,250

18,850

15,200

 

26,850

1974

31,800

25,500

21,500

22,200

18,850

20,500

 

32,000

1975

34,300

28,700

23,700

26,150

24,500

25,850

 

33,600

1976

36,800

32,900

26,275

29,800

33,000

31,575

 

35,100

1977

39,200

37,000

28,600

32,600

36,400

34,500

 

36,700

1978

43,200

37,600

29,975

33,100

38,575

34,000

 

37,300

1979

50,700

38,000

31,450

33,750

38,600

34,750

 

39,000

1980

68,850

39,500

35,475

36,000

40,350

36,250

 

44,675

1981

78,900

44,000

45,325

39,100

43,825

37,100

 

57,750

1982

79,425

46,750

55,125

42,850

48,225

40.325

 

59,025

1983

81,425

52,500

55,525

47,950

49,000

42,500

 

68,150

1984

85,900

65,000

58,950

61,250

48,175

44,750

 

84,250

1985

88,350

75,200

61,550

72,200

52,050

55,500

 

90,625

1986

98,325

82,000

63,000

73,500

58,000

56,725

87,500

91,175

1987

120,025

89,500

63,500

74,500

61,225

63,450

81,075

90,125

1988

141,000

109,000

71,000

80,400

78,000

67,950

86,000

101,250

1989

170,850

132,000

96,000

90,400

102,500

77,325

90,750

115,000

1990

194,000

131,000

113,000

97,200

101,125

82,000

101,500

120,750

1991

182,000

127,000

120,000

103,900

99,500

89,650

111,550

136,500

1992

183,300

125,000

129,000

108,300

102,500

95,825

126,125

155,250

1993

188,000

126,000

136,500

111,200

112,750

104,250

150,500

159,375

1994

192,375

130,000

143,000

113,500

123,125

110,500

157,875

160,850

1995

196,750

129,000

147,000

111,500

126,788

106,750

165,375

155,550

1996

211,125

131,000

148,000

110,000

126,625

108,000

164,250

152,375

1997

233,250

142,000

150,000

113,500

134,125

108,750

176,500

152,750

1998

248,750

155,000

159,500

118,600

141,000

107,250

173,500

155,500

1999

272,500

175,000

161,000

127,000

147,500

112,225

179,375

161,500

2000

287,000

191,000

170,000

135,000

156,250

117,750

186,800

180,825

2001

322,500

225,000

178,700

150,000

168,375

120,575

188,000

206,250

2002

387,500

258,000

205,000

180,000

189,250

137,150

202,250

234,150

2003

454,250

276,000

249,000

225,000

205,000

172,500

211,333

293,667

Sources and notes:

(a) 1970-1989 prices are from Applied Economics (1991), with prices from 1980 to 1989 based on a 10 per cent sample of NSW VG data; 1990-94 prices are spliced using ABS data; 1995-2003 prices are from NSW VG / Department of Housing data.

(b) 1970-79 are unpublished Productivity Commission data based on VG data; 1980-2003 are Victorian VG data.

(c ) 1973-79 are mean prices from Abelson (1982) factored down by 8% to fit REIA median data in 1980 and 1981; 1980-85, REIA data; 1986-2003, Queensland VG data.

(d) 1971-79 are mean values from Abelson (1982) obtained from SA VG reduced by 8% for medians; 1980-2003 are from SA VG.

(e) 1970-89, based on REIA data. 1990-2003, average of quarterly data from the Department of Land.

(f) 1971-81 are mean values (Abelson, 1982) reduced by 8%; 1982-83 are interpolated; 1984-90, CBA data spliced to 1991-2003 average quarterly REIA data..

(g) Average of quarterly medians from REIA.

(h) 1971-80 are mean values from Abelson (1982) reduced by 9% for medians; 1981-2003 are average of quarterly REIA medians.

Table 2 Real annual house price indices - capital cities (1990 = 100)

Year

Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Darwin

Canberra

Australia
AC(a) Treasury

1970

56.6

57.4

 

101.6

   

64.0

58.8

1971

60.5

56.7

67.8

97.2

   

82.6

65.7

61.2

1972

63.8

59.8

71.1

90.4

80.3

 

88.0

68.0

64.2

1973

67.5

72.3

74.1

79.9

89.1

88.6

 

106.3

75.1

70.4

1974

68.0

80.7

78.9

94.7

77.3

103.7

 

109.9

79.0

75.0

1975

63.7

78.9

75.5

96.9

87.2

113.5

 

100.2

77.9

70.9

1976

60.3

79.8

73.9

97.4

103.7

122.3

 

92.9

78.7

70.2

1977

57.2

79.9

71.6

94.9

101.8

119.0

 

86.0

76.7

69.4

1978

58.3

75.2

69.5

89.2

100.0

108.6

 

80.9

74.3

68.9

1979

62.8

69.7

66.9

83.4

91.7

101.8

 

77.6

71.9

70.5

1980

77.4

65.7

68.4

80.7

87.0

96.4

 

80.7

74.6

78.5

1981

80.9

66.8

79.8

80.0

86.2

90.0

 

95.1

77.8

83.4

1982

73.2

63.8

87.2

78.8

85.3

87.9

 

87.4

75.1

78.9

1983

68.2

65.1

79.8

80.2

78.7

84.2

 

91.7

72.3

75.6

1984

69.2

77.6

81.6

98.5

74.5

85.3

 

109.1

78.5

78.9

1985

66,7

84.1

79.8

108.8

75.4

99.1

 

109.9

80.8

81.2

1986

68.0

84.0

74.9

101.5

77.0

92.9

115.7

101.4

79.9

80.3

1987

76.6

84.5

69.5

94.8

74.9

95.8

98.8

92.4

80.6

77.8

1988

83.9

96.0

72.5

95.4

89.0

95.9

97.8

96.7

88.3

88.6

1989

94.5

108.1

91.1

99.8

108.7

101.1

95.9

102.2

100.4

104.4

1990

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

1991

90.9

93.9

102.9

103.6

95.3

103.2

106.5

109.5

96.2

98.0

1992

90.6

91.5

109.5

106.9

97.2

109.3

119.2

123.3

97.5

97.6

1993

91.3

90.6

113.8

107.8

105.1

116.8

139.7

124.4

99.4

97.8

1994

91.7

91.8

117.0

108.0

112.6

121.5

143.8

123.2

101.2

100.2

1995

89.6

87.0

115.0

101.4

110.8

112.1

144.0

113.8

97.6

99.2

1996

93.7

86.1

112.8

97.5

107.8

110.6

139.4

108.7

97.4

98.1

1997

103.3

93.1

114.0

100.3

113.9

111.1

149.4

108.7

103.5

100.3

1998

109.2

100.8

120.2

103.9

118.8

108.6

145.6

109.7

109.2

106.3

1999

117.9

112.1

119.6

109.7

122.4

112.0

148.4

112.3

116.2

112.8

2000

118.9

117.2

120.9

111.6

124.2

112.5

147.9

120.3

118.7

118.5

2001

128.0

132.2

121.7

118.8

128.2

110.3

142.6

131.5

127.3

127.1

2002

149.3

147.2

135.6

138.4

139.9

121.8

148.9

144.9

144.0

146.7

2003

170.3

153.2

160.2

168.3

147.4

149.1

151.4

176.9

165.9

163.2

                     

Index in 2003 1973 = 100

252.3

211.9

216.2

210.7

165.4

168.3

na

166.4

220.9

231.8

(a) Abelson-Chung index with 1991 Census data on houses used for weights and using data for cities as available (see text).

Sources: Table 1 deflated using the consumer price index.

Table 3 Annual median unit prices ($) - capital cities

Year

Sydney
(a)

Melbourne
(b)

Brisbane
(c )

Adelaide
(d)

Perth
(c)

Hobart
(c)

Darwin
(c

Canberra
(c)

1970

13,490

             

1971

15,127

             

1972

17,363

             

1973

20,145

             

1974

24,981

23,300

 

23,113

       

1975

26,470

25,675

 

24,345

       

1976

28,400

29,625

 

29,599

       

1977

30,600

32,050

 

31,537

       

1978

33,000

33,050

 

30,750

       

1979

40,400

31,500

 

31,979

       

1980

56,500

33,000

37,379

31,997

35,825

   

33,867

1981

67,300

36,500

48,308

34,334

36,004

   

43,963

1982

70,200

38,500

48,471

38,887

38,958

   

42,833

1983

66,000

42,500

54,396

45,213

40,729

   

50,358

1984

67,800

52,500

58,738

56,238

37,467

40,200

 

59,833

1985

70,500

60,000

55,446

61,600

40,033

47,750

 

72,604

1986

72,300

66,750

60,508

65,400

44,042

62,100

 

84,333

1987

86,200

72,250

61,146

64,200

48,263

59,908

 

76,688

1988

118,400

85,000

68,875

67,000

57,417

60,896

 

84,667

1989

138,525

104,500

85,604

72,900

75,917

73,833

 

91,313

1990

135,715

115,000

91,375

81,300

75,625

71,208

 

96,979

1991

139,285

108,500

93,875

86,000

75,500

72,775

 

104,083

1992

140,280

110,000

98,896

89,600

76,267

76,817

 

128,125

1993

142,760

110,000

101,688

91,400

79,492

80,771

 

130,583

1994

156,075

115,000

103,583

96,000

86,200

84,542

 

129,083

1995

173,625

115,000

107,358

94,100

87,096

88,292

 

122,542

1996

186,250

115,000

127,583

89,000

87,525

84,404

 

122,083

1997

214,250

127,000

128,125

89,300

92,813

77,375

131,667

122,333

1998

228,375

140,000

145,333

91,100

98,473

79,017

127,167

128,500

1999

243,375

170,075

139,000

94,100

107,075

85,500

155,550

131,125

2000

256,250

184,000

171,500

99,300

114,275

88,850

146,550

140,250

2001

291,250

215,388

165,475

112,200

123,575

88,525

149,750

156,875

2002

329,500

240,075

173,775

138,300

142,150

95,625

154,750

197,750

2003

360,000

269,000

201,833

159,700

160,467

126,200

153,167

253,533

Sources and notes

(a) 1970-1988 are Applied Economics (1991) data based on VG data; 1989-94 are average of REIA and CBA figures; 1995-2003 are VG data.

(b) 1974-89 are based on VG data (Applied Economics, 1991); 1990-2003 are VG data.

(c) Average of quarterly data from REIA.

(d) 1974-84 are based on mean values from VG data (Applied Economics, 1991); 1985-03 are medians from VG.

Table 4 Real annual unit price indices - capital cities except Darwin (1990 = 100)

Year

Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Canberra

Australia (a)

1970

58.4

             

1971

61.7

             

1972

66.8

             

1973

71.0

             

1974

76.3

84.0

 

117.9

     

81.4

1975

70.2

80.4

107.8

     

75.8

1976

66.5

81.8

115.7

     

74.4

1977

63.8

78.8

109.7

     

71.4

1978

63.7

75.3

99.1

     

69.5

1979

71.5

65.8

94.5

     

71.3

1980

90.8

62.6

89.2

85.8

103.3

 

76.1

83.1

1981

98.6

63.1

105.2

84.0

94.7

 

90.2

88.5

1982

92.5

59.9

94.9

85.5

92.1

 

79.0

83.3

1983

79.0

60.0

96.7

90.4

87.5

 

84.4

76.7

1984

78.1

71.4

100.5

108.1

77.4

88.3

96.4

81.0

1985

76.1

76.4

88.9

111.0

77.5

98.2

109.6

80.5

1986

71.5

77.9

88.9

108.0

78.2

117.1

116.7

78.7

1987

78.6

77.7

82.8

97.7

79.0

104.1

97.9

80.6

1988

100.7

85.3

87.0

95.1

87.6

98.7

100.7

94.5

1989

109.5

97.5

100.5

96.2

107.7

111.2

101.0

104.7

1990

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

1991

99.4

91.4

99.5

102.5

96.7

99.0

104.0

97.6

1992

99.2

91.8

103.8

105.7

96.7

103.5

126.7

98.7

1993

99.1

90.1

104.9

105.9

99.0

106.9

126.9

98.6

1994

106.3

92.5

104.8

109.2

105.4

109.8

123.1

103.3

1995

113.1

88.4

103.8

102.3

101.8

109.6

111.7

104.8

1996

118.2

86.1

120.2

94.3

99.7

102.1

108.4

107.8

1997

135.6

94.9

120.5

94.4

105.4

93.3

108.4

119.1

1998

143.3

103.7

135.5

95.4

110.9

94.5

112.9

127.1

1999

150.5

124.2

127.7

97.2

118.9

100.8

113.5

135.6

2000

151.7

128.6

150.8

98.1

121.4

100.3

116.2

139.8

2001

165.2

144.2

139.4

106.2

125.8

95.7

124.5

150.2

2002

181.5

156.0

142.1

127.1

140.5

100.4

152.4

164.3

2003

192.9

170.1

160.6

142.9

154.3

128.9

190.1

178.2

                 

Index in 2003: 1974 = 100

252.8

202.5

na

121.2

na

na

Na

219.0

(a) Abelson-Chung index with 1991 Census data on units used for weights and using data for cities as available (see text).

Sources: Table 3 deflated using the consumer price index.

Table 5 Annual median prices ($) - rest of the states

Year

NSW

Victoria

Queensland

S.Australia

W.Australia

Tasmania

 

Houses

houses

units

houses

houses

units

houses

Houses

 

(a)

(b)

(c)

(d)

(e)

(f)

1985

70,175

50,000

51,500

 

48,800

52,000

52,325

49,450

1986

67,500

55,500

57,000

55,000

52,200

60,700

52,800

57,025

1987

71,550

60,000

59,950

57,500

51,900

65,000

58,200

57,450

1988

81,975

67,000

65,000

65,000

56,900

59,800

63,025

61,700

1989

96,375

77,000

74,000

80,000

58,700

60,300

74,175

67,075

1990

107,525

80,000

78,500

88,000

63,100

64,600

77,425

74,600

1991

115,825

80,000

80,000

94,900

66,400

72,500

82,500

76,925

1992

120,025

82,000

80,800

101,500

68,000

72,000

84,100

82,475

1993

119,175

83,500

80,000

112,000

72,800

73,900

89,925

85,950

1994

126,275

86,000

82,350

120,000

77,700

78,700

100,050

91,950

1995

131,625

85,000

83,000

127,000

81,300

75,700

112,850

96,450

1996

136,225

85,500

82,000

127,000

81,800

81,900

123,425

97,675

1997

143,375

88,000

80,000

128,000

84,000

83,300

134,725

105,450

1998

154,675

91,000

83,000

134,000

85,600

83,700

139,250

106,600

1999

170,150

100,000

88,500

135,000

90,200

84,700

148,975

106,475

2000

164,775

105,000

96,600

140,000

91,300

90,300

148,250

101,525

2001

169,900

121,000

105,000

138,000

99,300

89,100

149,650

99,525

2002

209,725

144,000

122,250

151,000

117,800

107,400

174,400

109,225

2003

273,200

177,120

150,368

175,000

135,800

126,500

203,967

147,067

(a) Rest of New South Wales. Average of quarterly data from CBA/HIA.

(b) Victoria country; VG data. 2003 = 2002 factored up by increase shown in CBA figures.

(c) Rest of Queensland. Average of quarterly (fiscal year, not calendar year) data from VG.

(d) Non-metro in South Australia; VG data.

(e) Rest of Western Australia; Average of quarterly data from CBA/HIA.

(f) Rest of Tasmania; Average of quarterly data from CBA/HIA.

Table 6 Real annual median price indices - rest of the states

Year

NSW

Victoria

Queensland

S.Australia

W.Australia

Tasmania

Australia (a)

 

Houses

houses

units

Houses

houses

units

houses

Houses

Houses

1985

95.6

91.5

96.1

 

113.3

117.9

99.0

97.1

96.0

1986

84.3

93.1

97.5

83.9

111.1

126.1

91.6

102.6

89.1

1987

82.3

92.8

94.5

80.9

101.8

124.5

93.0

95.3

86.8

1988

88.0

96.6

95.5

85.2

104.0

106.8

93.9

95.4

90.9

1989

96.2

103.3

101.1

97.5

99.8

100.1

102.8

96.5

98.7

1990

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

1991

104.4

96.9

98.7

104.5

101.9

108.7

103.2

99.9

102.3

1992

107.1

98.3

98.7

110.6

103.4

106.9

104.2

106.1

105.6

1993

104.4

98.3

96.0

119.9

108.7

107.8

109.4

108.6

107.7

1994

108.6

99.4

97.0

126.1

113.9

112.7

119.5

114.0

112.2

1995

108.2

93.9

93.4

127.5

113.9

103.6

128.8

114.3

111.9

1996

109.1

92.0

90.0

124.3

111.6

109.2

137.3

112.8

111.5

1997

114.6

94.5

87.5

125.0

114.4

110.8

149.5

121.4

115.6

1998

122.5

96.9

90.1

129.7

115.6

110.4

153.2

121.7

120.5

1999

132.8

104.9

94.6

128.8

120.0

110.1

161.5

119.8

126.5

2000

123.1

105.5

98.9

127.8

116.3

112.3

153.9

109.4

121.6

2001

121.6

116.4

103.0

120.7

121.1

106.2

148.8

102.7

121.2

2002

145.8

134.5

116.4

128.2

139.5

124.3

168.3

109.4

138.5

2003

184.8

161.0

139.3

144.6

156.5

142.4

191.6

143.4

166.7

(a) Abelson-Chung index with 1991 Census data on dwellings used for weights.

House prices are actually housing expenditures. Thus

Ph = ∑piqi (1)

where Ph is house price, there are i attributes of a house, and p and q stand for the price and quantity of the attributes. Clearly house prices may rise because the quality or quantity of attributes rises, with no rise in the prices of the attributes. The attributes of houses include house size, garages and swimming pools, central heating and air conditioning, kitchens of various qualities, and so on. Generally the quantity of the attributes (i.e. the quality of dwellings) rises over time. For example, the size of new homes has increased over many years by about 1.8 cent per annum. Between 1984-85 and 2002-03, the average floor area of new houses in Australia rose by 40 per cent (from 162 m2 to 227.3 m2) and the average floor area of other new dwellings rose by 35 per cent (from 99.2 m2 to 134 m2).13

As we have seen, the ABS attempts to control for quality changes by stratifying houses by area within a city and also by size (number of bedrooms) in some cities. However, this does not allow for changes in the physical or locational attributes of particular properties. Physical attributes reflect home improvements. Locational attributes reflect neighbourhood or infrastructure improvements.

Of special interest here are improvements to existing dwellings that make up 98 per cent of the housing stock at any point in time. In addition to repairs and maintenance to dwellings to maintain housing quality, households spend regularly about 2 per cent of GDP on dwelling improvements (alterations and additions) – see Table 7. Indeed in 2001-02 and 2002-03, expenditure on alterations and additions has risen and averaged 2.5 per cent of GDP.

Table 7 (column 4) also provides estimates of annual expenditure on dwelling improvements in relation to the value of the dwelling stock at the end of the financial year. Our estimates of the value of the dwelling stock are based on our estimates of the value of the stock of houses, units and other dwellings in each state in June 1991(based on the stock shown in the 1991 Household Census). We inflated the estimated median values for each housing type by 9 per cent to reflect typical differences between mean and median values. The estimated values for the housing stock in other years allow for an average 1.75 per cent change in the quantity of the stock each year as well as for estimated changes in nominal dwelling prices. For the 24 years, 1979-80 to 2002-03, we estimate that expenditure on alterations and additions averaged 1.02 per cent of the value of the housing stock.

Table 7 Value of dwellings and expenditure on alterations and additions (AA)

 

Estimated value of housing stock at 30 June ($bn)

Expenditure on alterations and additions ($bn)

Expenditure on AA as % of value of housing

GDP ($bn)

Value of dwellings % of GDP

Expenditure on AA as % of GDP

1979-80

219

2.4

1.07

128.8

169.8

1.8

1980-81

255

3.0

1.18

145.9

174.7

2.1

1981-82

280

3.4

1.21

167.7

167.2

2.0

1982-83

303

3.3

1.09

180.8

167.5

1.8

1983-84

346

3.6

1.04

203.7

170.0

1.8

1984-85

391

4.2

1.07

225.4

173.5

1.9

1985-86

426

4.8

1.13

248.6

171.3

1.9

1986-87

474

4.9

1.03

272.3

174.2

1.8

1987-88

604

5.3

0.88

310.6

194.6

1.7

1988-89

734

6.3

0.86

351.9

208.5

1.8

1989-90

767

7.4

0.97

385.0

199.2

1.9

1990-91

775

7.5

0.97

397.9

194.8

1.9

1991-92

807

7.5

0.93

404.6

199.5

1.9

1992-93

852

8.3

0.97

426.2

200.0

1.9

1993-94

900

9.2

1.02

447.0

201.3

2.1

1994-95

924

10.3

1.11

471.3

196.0

2.2

1995-96

963

10.2

1.06

502.8

191.5

2.0

1996-97

1043

10.2

0.98

529.9

196.9

1.9

1997-98

1130

11.7

1.04

561.2

201.3

2.1

1998-99

1243

12.7

1.02

591.9

210.0

2.1

1999-2000

1348

15.2

1.13

626.0

215.3

2.4

2000-01

1535

14.3

0.93

671.1

228.7

2.1

2001-02

1820

16.8

0.92

714.4

254.7

2.4

2002-03

2193

19.9

0.91

753.2

291.1

2.6

Sources: ABS, Cat. 5204.0. Value of housing stock estimated – see text.

We conclude that the quality of the established housing stock rises by at least 1 per cent per annum on average. Expenditure on alterations and additions does not include expenditure on fittings (which tend to improve) or any non-market household or black economy time spent on maintaining or improving dwellings. As noted, the size of new buildings is increasing by nearly 2 per cent per annum, but this is only a small part of the housing stock at any point in time. Moreover, although expenditure on alterations and additions varies a little in relation to GDP, the relationship is remarkably steady except for the most recent years. It might be expected that expenditure on alterations and additions is disproportionately on houses rather than on units, which are less amenable to alterations, but we have no evidence on this.

Estimating constant quality Australian real house price indices

Table 8 shows our estimated constant quality real price indices for all Australian houses and units. The AC indices are the Abelson-Chung real price indices for houses and units across Australia shown in Tables 2 and 4 respectively. The AT index is the estimated Australian Treasury real price index for Australian houses (from Table 2). To estimate the respective constant quality (CQ) indices, we assume that the quality change in each calendar year equals the expenditure on alterations as a percentage of housing value in the immediately preceding financial year (as per column 4 in Table 7). For example in 1991, there was 0.97 per cent improvement in quality compared with 1990. To allow for this we multiply the AC real house price index in 1991 by 99.03 (= 100.0 – 0.97) and obtain a constant quality index number of 95.3. Of course, this value effect compounds each year. We adopt a similar procedure to estimate a constant quality Treasury real house price index and an Abelson-Chung constant quality real unit price index.

As noted, there may be proportionately more improvements in housing than in units, but we have no differentiating data. On the other hand, median unit prices may have more locational bias over time as a large number of units have been built in or close to CBDs in recent years.

Table 8 Estimated national constant quality real housing indexes (a)

Year

Houses

Houses

Units

 

ACa

ACCQb

ATc

ATCQb

ACd

ACCQb

             

1980

74.6

82.8

78.5

87.1

83.1

92.2

1981

77.8

85.3

83.4

91.5

88.5

97.1

1982

75.1

81.4

78.9

85.5

83.3

90.3

1983

72.3

77.5

75.6

81.0

76.7

82.2

1984

78.5

83.3

78.9

83.7

81

85.9

1985

80.8

84.8

81.2

85.2

80.5

84.5

1986

79.9

82.9

80.3

83.3

78.7

81.7

1987

80.6

82.8

77.8

79.9

80.6

82.8

1988

88.3

89.9

88.6

90.2

94.5

96.2

1989

100.4

101.4

104.4

105.4

104.7

105.7

1990

100.0

100.0

100.0

100.0

100

100.0

1991

96.2

95.3

98.0

97.1

97.6

96.7

1992

97.5

95.7

97.6

95.8

98.7

96.9

1993

99.4

96.6

97.8

95.0

98.6

95.8

1994

101.2

97.4

100.2

96.4

103.3

99.4

1995

97.6

92.9

99.2

94.4

104.8

99.7

1996

97.4

91.7

98.1

92.4

107.8

101.5

1997

103.5

96.5

100.3

93.5

119.1

111.0

1998

109.2

100.8

106.3

98.1

127.1

117.3

1999

116.2

106.1

112.8

103.0

135.6

123.9

2000

118.7

107.2

118.5

107.0

139.8

126.3

2001

127.3

113.9

127.1

113.7

150.2

134.4

2002

144.0

127.7

146.7

130.1

164.3

145.7

2003

165.9

145.8

163.2

143.4

178.2

156.6

(a) Abelson-Chung Australian real house price index from Table 2.

(b) CQ stands for constant quality.

(c) Australian Treasury Australian real house price index from Table 2.

(d) Abelson-Chung real unit price index from Table 4.

Estimating constant quality real house price indices for the capital cities

We also examine briefly the effects of allowing for quality changes in the capital cities. Table 9 shows the proportion of dwellings in each state and the percentage of expenditure on alterations and additions in each state in the calendar years 2001 and 2002. The table shows that expenditure on alterations and additions in these years approximately matched the proportion of dwellings in each state. In relation to dwellings, expenditure on alterations was slightly high in Queensland and Victoria and low in NSW, South Australian and Tasmania.

Table 9 Allocation of expenditure on alterations and additions

State / Territory

Percentage of dwellings

Percentage of expenditure on AA
2001 2002

NSW

33

30

31

Victoria

25

28

26

Queensland

19

22

24

S. Australia

8

6

6

W. Australia

10

10

9

Tasmania

3

1

1

ACT

2

2

2

N. Territory

1

1

1

Total

100

100

100

Sources: ABS, Cat. 5204.0 and 2001 Household Census.

However, we have not pursued these possible interstate differences further in part because we are mainly interested in capital city prices rather than state-wide prices and data on improvements by city are not readily available. In Table 10 we provide estimates of constant quality real house price indices for each capital city for 1980 and 2003, holding quality constant at 1990 levels and continuing to base the index on 1990 = 100.0. We assume constant quality changes across Australia. Consistent with the pattern for Australia-wide expenditures on alterations and additions, our estimates assume that alterations and additions accounted for an average 1.04 per cent per annum increase in the median value of houses in each city between 1980 and 1990 and an average 1.00 per cent per anum increase in value between 1990 and 2002. Allowing for compounding, this implies that the quality of the median house in 1990 was 10.9 per cent higher than the quality in 1980 and that quality of the median house in 2003 was in turn 13.8 per cent higher than in 1990. To estimate a constant quality house price index over the period, we multiply the 1980 real price index by 1.109 and the 2003 real price index by 0.879 (1.0 / 1.138). This significantly reduces the real increases in house prices. Nevertheless, there remained substantial real house price increases in all cities over this period.

Table 10 Real annual house price indices – selected years in capital cities (1990 = 100)

Year

Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Darwin

Canberra

Australia
AC Treasury

Real price indices from Table 2

             

1980

77.4

65.7

68.4

80.7

87.0

96.4

 

80.7

74.6

78.5

1990

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

2003

170.3

153.2

160.2

168.3

147.4

149.1

151.4

176.9

165.9

163.2

Constant quality price indices

             

1980

85.8

72.9

75.9

89.5

96.5

106.9

na

89.5

82.5

87.1

1990

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

2003

149.6

134.7

140.8

147.9

129.6

131.1

133.1

155.5

145.8

143.4

Sources: Table 2 and our estimates of quality adjusted indices (see text).

House prices in capital cities

In Table 2 (and in Figure 1) we show the Abelson-Chung and Australian Treasury real house price indices for Australian capital cities, with no allowance for alterations and additions. The indices are similar, especially since the mid-1980s. The correlation is 0.995 for the period from 1986 to 2003 but only 0.774 for 1970 to 1985.14 The Abelson-Chung index has a slightly higher price spike in 1974-75 and a slightly smaller one in 1980-81. As we have noted, the two series use slightly different databases as well as different weights, with the Treasury giving more weight to Sydney houses. We have not seen the 1970s’ house price data on which the Treasury index is based and so cannot explain the differences in that decade.

Both national indices show significant house price booms from 1971 to 1974, from 1979 to 1981, from 1987 to 1989, and from 1996 through to 2003 (much the most prolonged price boom). After each of the first three booms, real prices tended to fall. However, in the long run real price rises exceeded falls. Real house prices rose by about 160 per cent between 1970 and 2003. However this could be a misleading estimate of the real long-term house price increase if there is a downturn in real house prices after the 1996-2003 boom.15

Figure 1

Applied Economics

The 160 per cent real house price increase over 30 years places Australia close to the top of the OECD league for house price increases. As reported by Tsatsaronis and Zhu (2004), who analyse international house prices also from 1970 to 2003, only the UK, Spain and Netherlands experienced real house price increases of a similar magnitude over this period. Real house price increases in most other OECD countries ranged over this period from minus 10 per cent to plus 100 per cent.

In Figure 1, we also show our estimated constant quality Australian Treasury real housing price index from Table 8. This is based on the figures in Table 8 (column 5) back to 1980 and an assumed one per cent per annum quality improvement in the 1970s. On this basis, in constant quality terms real house prices would have risen by 100 per cent between 1970 and 2003 (rather than by 160 per cent). Again, a caveat must be made about end-year to end-year comparisons.

It may also be observed that, whether using the actual 160 per cent increase in real house prices or the 100 per cent constant quality adjusted increase, these real price increases were well above the approximately 50 per cent increase in real disposable income per capita that occurred over this 30 year period. There is no simple relationship between house prices and per capita disposable income because the housing market is not always in equilibrium and the real cost of housing is also determined by real interest rates as well as by other factors. In an econometric study of real house prices (not quality adjusted), which accounted for disequilibrium and interest rates, Abelson, Joyeux, Milunovich and Chung (2005) estimated that the elasticity of long-run elasticity of real house prices is 1.7 with respect to real disposable income per capita.

Contrary to some popular views, cities have generally experienced similar changes in house prices, especially in recent years. Between 1990 and 2003, ignoring alterations and additions, real house prices rose between 47 per cent and 77 per cent in all cities, compared with an Australian figure of about 64 per cent. Even over a longer period, the major cities exhibited similar price movements. From between 1970 and 1973 (depending on data availability) to 2003, the following house price correlations are observed: Sydney-Melbourne (0.925); Sydney-Brisbane (0.916); Melbourne-Adelaide (0.921), Melbourne-Perth (0.811).

However, the smaller and more outlying cities deviated more from the norms. For example, house prices in Perth fell in real terms in the 1971 to 1974 house price boom, possibly because Perth experienced an earlier real increase with the 1969-71 stock mining boom in the West. Canberra experienced major house price booms after Labor party general election wins in 1972 and 1983 (the latter boom a departure from national trends). Also real house prices in Perth, Hobart and Canberra rose in the early 1990s when real prices in other cities were falling.

Unit prices in capital cities

House and unit prices also exhibited similar trends (see Figure 1). The unit price index rose slightly more in recent years due to the high weighting of Sydney in the unit index (and possibly because of the construction of units in and close to city centres). Real unit prices boomed between 1978 and 1981, 1986 and 1990, and from 1993 though to 2003.16 There was a high correlation (0.982) between our Australian house and unit price indices from 1974 to 2003. High correlations can also be observed between house and unit prices within Sydney and within Melbourne. Such high correlations would not necessarily be expected. Compared with units, houses usually contain a high proportion of land value and a low proportion of built value. Usually land value appreciates more than built value which should not increase faster than the CPI unless building productivity is lagging. Also the supply of units is more elastic than the supply of houses.

Furthermore, unit prices in the major cities moved in broadly similar ways. The correlations between Sydney and Melbourne unit prices from 1974 to 2003 and between Sydney and Brisbane prices from 1980 to 2003 were 0.893 and 0.942 respectively.

Rest of Australia

In recent years house prices in the rest of Australia have risen in a remarkably similar way to those in cities. Between 1990 and 2003, real prices in the rest of Australia rose by an estimated average of 67 per cent compared with real prices in the cities that rose by an estimated average of 63 per cent. Again the main movements in prices were similar over time. Also, prices rose in broadly similar ways in all states, though slightly more in NSW, Victoria and Western Australia than in South Australia, Queensland and Tasmania.

In this paper we have attempted to provide an authoritative account of housing prices in Australia from 1970 to 2003. We have drawn where possible on data from land title offices around Australia and supplemented these data as required from other sources.

A feature of the findings is the strong national trends. Price changes in the major cities were quite highly correlated especially over the last 15 or so years. Also unit prices in cities were highly correlated with house prices in cities and house price movements outside cities have reflected price movements in cities in recent years.

There were significant house price booms in most of Australia from 1971 to 1974, from 1979 to 1981, from 1987 to 1989, and from 1996 through to 2003. After each of the first three booms, real prices tended to fall. However in the long run, our estimated national index for real house prices in Australian cities rose by about 160 per cent between 1970 and 2003. This real price increase was at the top end of real price increases for houses observed in OECD countries over this period.

Housing improvements accounted for a significant part of these real prices. We estimate that constant quality national index for real house prices in Australia cities increased by about 100 per cent over this same 33-year period. Of course, both estimates of real house price increases (without and with quality adjustments) give an exaggerated picture of real price increases if there is a real house price downturn post 2003 as there was after previous house price booms.

Abelson, P., 1982, Models of Short Term Movements in House Prices, 52nd ANZAAS Congress.

Abelson, P., 2005, ‘Taxation and House Prices’, Macquarie University Economics Research Paper, forthcoming.

Abelson, P. and Chung, D., 2004, ‘Housing Prices in Australia: 1970 to 2003’, Macquarie Economics Research Papers, No. 9/2004, September 2004.

Abelson P., Joyeux, R., Milunovich, G. and D.Chung,, 2005, ‘Explaining House Prices in Australia: 1970 to 2003’, Economic Record, forthcoming.

Applied Economics and Travers Morgan, 1991, Housing Costs Study Volume 3, Determinants of the Prices of Established Housing, Australian Building Research Grants Scheme, Canberra.

Productivity Commission, 2004, First Home Ownership, Report no. 28, Melbourne.

Reserve Bank of Australia, 2004, ‘Measuring Housing Prices’, Reserve Bank of Australia Bulletin, July, pp.1-9.

Tsatsaronis, K., and H.Zhu, 2004, ‘What drives housing price dynamics: cross-country evidence’, BIS Quarterly Review, 65-78.

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