Pricey housing? Second to none

House prices in Australia are very high relative to rents. Source: News Corp Australia

AUSTRALIA'S housing market has been branded the world's second most overvalued by a prominent international banking group.

Only homes in Norway are rated as more expensive after adjusting prices for factors such as inflation, wages and potential rental income, according to the Bank of International Settlements.

The bank — known as the central bank for central banks — said that despite the high cost of Australian housing, real property price growth was ­almost flat in the past three years after stripping out the ­effect of inflation.

Its data, which covered 29 countries, showed Australia's housing prices were unusually high relative to rents, along with those in Norway, Canada and Sweden.

On the Bank of International Settlement's house price index — which sets 100 as a benchmark — Australian housing clocked in at 200 points.

The UK, Sweden and France were next down the list, with readings between 150 and 200 points.

In its quarterly review, the bank said there was 7.7 per cent growth in property prices across Australia's capital cities for the past 12 months.

Australia scored poorly on two key affordability measures over the past three years.

The nation's price-to-income ratio blew out faster than in every other nation, except Belgium, in the three-year ­period. On the index measuring price-to-income ratio, Australia clocks in at 140, indicating home prices — relative to income levels — are 40 per cent higher than the historical average.

The report said property prices in some countries were at least 20 per cent higher than those implied by the historical relationship to incomes, suggesting "potential downward pressures on real house prices".

"This might lead to a reversal or moderation of recent growth ... or a further sliding of prices," it said.

"This argument would be more compelling for markets where prices have grown rapidly in the recent past, and where income growth is projected to be rather moderate."

Australian house prices, particularly in Sydney and Melbourne, have risen sharply in the past 18 months, while wage growth has been subdued.

Australia's price-to-rent ratio has also blown out in the period, now sitting at about 150.

Canada, Norway and Sweden were the only countries to return a poorer score, with Canada's ratio at 180.

with AAP

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