Understanding if a 'housing bubble' exists in the Australian housing market is the new focus of a University of Sydney complex systems research team.
Dr Michael Harre from the School of Civil Engineering will lead the Australian Research Council-funded project, which will develop a model that can predict and evaluate the presence and risk of ‘housing bubbles’ across the nation.
We will combine world leading simulation software with datasets from sources such as the Australian Bureau of Statistics, the Australian Census data and mortgage markets
Dr Harre says: “There is a great deal of uncertainty around the answer to the deceptively simple question ‘Is the Australian housing market at risk of a collapse?’
“To address this uncertainty we aim to model the systemic risks in the market by using an agent-based simulation at the level of the individual household and financial decision-maker.
“We will combine world leading simulation software with datasets from sources such as the Australian Bureau of Statistics, the Australian Census data and mortgage markets. This will allow us to create a dynamic behavioural model of financial decisions.
“The model will provide an unprecedented ability to economically zoom in and out on different suburbs, cities and regions across Australia in order to predict, measure and mitigate systemic risks.”
While there is genuine government concern at the national policy level, systemic risks in housing markets are yet to be understood.
The team’s fresh computational simulation approach to understanding the economic risks faced by the housing market will provide specific guidelines to economic policy makers.
“It means understanding where the housing market is, where it is heading and how close it might be to a crisis, on a region-by-region basis,” says Dr Harre.
“The improved quality of our understanding will let individuals and investors alike buy and build with confidence, securing homes as family residences or investment vehicles and protecting jobs in the housing industry.”
The Australian property market is worth $33.2 billion, sixty-four percent of which is residential homeowners and the remainder investment properties.
“We want the outcomes of this project to bring some confidence to modeling the future of the Australian housing market. We want the model to evaluate the presence of ‘housing bubbles’, the risk of such bubbles bursting and the changes necessary to avoid or mitigate the impact of a burst,” said Dr Harre.