Comparisons between Australian and US housing markets

I finding it interesting to hear the continual cry from people who don’t believe that property prices could possibly fall in Australia. The primary argument presented is that due to restrictive planning laws in Australia there is a shortage of houses, so prices can’t fall due to supply and demand.

I was just reading an interesting report (link below) which states that the US housing markets which crashed the most, were actually the ones that had the tightest housing markets due to restrictive planning. This totally refutes the key argument of those claiming it could never happen here.

http://www.demographia.com/db-ushsg2009q1.pdf

This article confirms that there really was a housing shortage in the California markets that fell significantly. It sounds just like what we are hearing from market experts in Australia today.

http://rebuildca.org/shortage.html

The comparisons between the Australian market today and the US markets that fell the most (a few years ago) are staggering:
1. A market with short term huge incentives and low interest rates, to get people into homes that they cant afford under normal interest rate conditions
2. House prices around 7+ times the median income due to restricted supply
3. Interest rates about to increase significantly

The steps recently taken by the Rudd government (stimulus package) and the RBA (interest rate reduction) have ensured that we will end up having Australia’s housing collapse in the next few years and that it will be much worse because of their actions.

How many people buying, upgrading and extending their houses over the past year at 5% interest rates, could still afford their mortgages when interest rates are 10% again?

I can still get a loan from a bank for 6.5 times my income at 5% interest rate. When interest rates are 10% again, it would take ALL my income just to service an interest only loan.

As we have discovered in recent years, interest rates in Australia are primarily determined by international events, we dont get much control over them. At the moment with interest rates in US, UK, Japan etc at 0% and money being printed by the truck load, the chances that inflation will suddenly hit international economies like happened in 1970s, we could easily end up with interest rates skyrocketing like in the 80s. 10% is likely, 15% or 20% is possible.

Interested to hear the thoughts of others.