Sydney, Melbourne housing is a bubble says Nobel winning economist

Wednesday, 5 August 2015 00:00 - - {{hitsCtrl.values.hits}}

Media OutReach: Sydney and Melbourne property prices have grown at more than 15 per cent per annum over the last three years, outperforming any other Australian markets and creating a bubble, said Nobel Prize winning economist Professor Vernon Smith.

Speaking at a dinner in Sydney last night hosted by the Macquarie Graduate School of Management Professor Smith discussed the future and current state of global property prices and argued that bubbles aren’t necessarily a bad thing.

“In Sydney and Melbourne, you are talking about regional growth that is significantly faster than other areas. There may be speculation that that is overdone but generally bubbles are a normal function of the economy,” said Professor Smith.

“There is little regulators can do to prevent them as they are largely a reflection of human nature, investing in what they perceive as a growth market,” he said.

“Our research, over many years, has shown that even if investors can see that they are investing in real estate at the peak of the market, they adopt a boom-time mentality,” said Professor Smith.

Professor Vernon Smith is the 2002 Nobel Memorial Prize Winner in Economics. Best known for his work on experimental economics. Professor Smith is in Australia for MGSM. While in Australia, Professor Smith also opened the Vernon L Smith Experimental Economics Laboratory at MGSM’s North Ryde Campus.

“Prof Smith the founder of experimental economics and a pioneer of research on real estate bubbles,” said Professor Alex Frino, Dean of MGSM.

“His lecture at the dinner provided cutting-edge insight into what is happening in Sydney and Melbourne property markets at the moment. He identified that prices are rising at an increasing rate which almost certainly signals that a bubble has formed,” said Professor Frino. This is the second event in MGSM’s Nobel Laureate Speaker Series which aims to bring the greatest minds in the world to Australia to discuss critical global business issues.

MGSM is one of the oldest business schools in Australia and has maintained a reputation for providing high quality, flexible postgraduate education over the past 40 years.