A week of wealth

Over time, economic theory has repeatedly made a mockery of the statement that “this time it will be different”.

Remember the dot.com boom with its endless IPOs and hyperbole that surrounded companies which had never turned in a profit but were expected to take over the business world as we know it?

Or indeed the credit crisis – all that lending without the caveat that eventually someone is going to have to pay it back.

Lately there have been attempts to explain the Australian residential property market that seem to have missed out on the fundamental question.

This is one market, remember, that has defied much of the western world and proven quite resilient to the worsened global economic climate.

In summary, the argument is that with Australian migration and population trends growing the demand for housing, the number of building approvals and new dwellings has not increased correspondingly – hence the resilience of the rental market, which has been strongly supported by undersupply.

This represents an obvious opportunity for property investors to capitalise on strong renter demand to gear their portfolio as much as possible.

But there is still no satisfactory explanation as to why supply has not picked up to meet the demand from the construction industry – especially given unmet demand has always been the precursor to strong opportunities.

And the answer to that question precedes a bigger one: what happens when the supply picks up?