Housing prices in most OECD countries rose significantly in the first few years of the 21st century, as a result of several global economic and demographic changes.

Property prices had previously risen in the late 1980s. In the United States baby boomers began to enter the housing market in big numbers, thanks to rising incomes, easy credit and 'right to buy' legislation. The recession of the early 1990s (accompanied by sudden spikes in interest rates) and de-industrialisation in many OECD countries caused this boom to dissipate, leading to a slow down or decline in housing prices. The world economy later improved in the 1990s, although it was the global bond and equity markets that saw the real action. They also were knocked around in sector and geography specific boom-bust cycles: bonds crashed in 1994, followed by the Asian economic crisis of 1997, Russia's IMF default in 1998 and the dot com crash in 2000. Various corporate scandals in 2001 and 2002 also made many people weary of investing in anything intangible.

Demand-side Factors

However Alan Greenspan and other central bank governors were able to keep interest rates low, and this was accompanied by heavy competition amongst mortgage providers to offer loans with ever decreasing minimum deposit requirements. The effect of microeconomic reforms in different countries managed to keep unemployment low and consumer confidence high, thus the market for housing never really disappeared. More people were therefore able to enter the housing market in the first few years of the 21st century than before (many of whom were too young to remember high interest rates a decade back). Governments in Canada, Australia and New Zealand introduced schemes to support people buy their own homes.

Psychologically, following the global uncertaincies brought on by 9/11, not to mention the roller-coaster rides of the equity markets, perhaps people were beginning to appreciate the unflashy security that bricks and mortar offer to their asset base. Other trends include sustained immigration rates, baby boomers choosing to retire early and downshift to specific areas (smaller and newer appartments, or places attracting retirees like France and Florida), single people choosing to buy property before marrying later, and bracket creep encouraging taxpayers to negatively gear property.

Supply-side Factors

When people were licking their wounds from the recession or investing in Thai websites, there was not much demand for old economy activity like building houses. Hence when people started putting money into property, there was not much new stock available to choose from. While economies were significantly more deregulated than before, property developers now had to contend with new planning, environmental, heritage and occupational health and safety restrictions. Note that these regulations existed for good reason: Los Angeles could only sprawl out to a certain point before household pets were at risk of becoming prey to mountain lions.

In the post-industrial world, jobs were now concentrated in the centres of major cities, rather than in the urban fringes. Naturally then people would be wanting to live as close as possible, which led to inner city no go zones in New York, London and other places becoming hot property spots. Those who were unable to afford suitable housing (particularly families and low-income earners) moved to the established inner suburbs and renovated lived-in housing, or distant new developments.

Effects of the Property Boom

Simply, many people (especially unencumbered baby boomers prepared to retire) could afford to sell up. Others were priced out of the market, although this will inevitably change should the boom lead to an over-supply of property. Interestingly, as a result of Internet technologies and decentralised work practices, it became possible for people to relocate and continue working from cheaper areas, such as Nova Scotia, Tasmania and Scotland.

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