After a rash of violence earlier this year directed against Indian international students, the Australian government commissioned a study to examine the reasons behind the attacks. Aside from the usual culprits – policing and regulatory failures, immigrant population increases and heightened xenophobia – the report suggested some of the violence may have been indirectly caused by high property prices.
Simon Marginson, director of the Monash Centre for Research in International Education at Monash University’s Faculty of Education said that students in the US and UK are shielded from high prices by living on campus, at least for their first year. The same is often true for Chinese students in Sydney, but others are less lucky.
"High prices in Melbourne have forced many South Asian students to live in overpopulated housing complexes in bad neighborhoods far from schools," he said. Beyond their first year, Chinese students may face similar risks.
High rents also require international students to commute to part-time job shifts at night, further adding to safety issues. Marginson says that these factors have significantly increased international students’s risk exposure, and may go some way towards explaining recent episodes of violence.
Unfortunately for overseas students – whose numbers are forecast to continue increasing at double-digit rates – most economists expect Australia’s property prices to remain high.
In fact, some economists argue that the country is in the middle of a massive property bubble. Residential property prices in Australia’s major cities roughly doubled between the late 1990s and 2004, and have remained high even as the global economic downturn ravaged markets in the US, UK and Europe. Prices increased by nearly 20% between January and September of this year.
Nobel prize-winning economist Joseph Stiglitz has called the rise a "cause for concern." Jeremy Grantham, chief investment strategist at US-based fund management firm GMO, said that a bubble burst is "near certain." Morgan Stanley’s chief economist, Gerard Minack, argued in a report released in August that "Australian house prices are expensive on every value metric. They are expensive relative to history, and expensive relative to houses in comparable countries… Dodging the worst of the global financial crisis didn’t demonstrate that there’s no bubble, in my view it just showed we dodged the prick."
Others debate whether there even is a bubble. The house price-to-income ratios for Australia’s two largest cities, Sydney and Melbourne, have fallen since 2003, and are currently just 6.2 and 5.7, respectively – below New York and San Francisco, which both score seven. The growth spurt experienced at the beginning of the year was probably the delayed result of interest rates set low to stave off recession.
Immigration may form another piece of the housing price puzzle: It expands Australia’s population by 2% a year, and has created a genuine housing shortage in major cities.
Harley Dale, chief economist at the Housing Industry Association, says that 420,000 more homes will need to be added next decade than last. Both student and non-student immigration contribute significantly to demand.
Interest rates are climbing again, and since March housing prices have correspondingly moderated. Even Morgan Stanley’s Minack agrees that the bubble will not burst in the short term. With unemployment over 5%, there is no immediate cause for concern. Australia may not be suffering from a bubble, but that is cold comfort for cash-strapped international students.