IMF: Australian House Price Report

The International Monetary Fund (IMF) has found Australia has the third highest house price-to-income ratio in the world.

The IMF's Global Housing Watch says global house prices have risen consistently for nearly the past two years.

The fund says prices are "well above the historical averages" in developed countries including Belgium, Canada, Australia, Norway and Sweden.

In addition, the IMF found 14 out of 24 developed economies examined still have above-average house price-to-income ratios, even after the dent in home values in many countries caused by the global financial crisis.

While a recovery in housing markets around the world is welcome, the IMF says it is critical to avoid another unsustainable boom in house prices like the one that preceded the GFC.

"In fact, our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises," IMF deputy managing director Min Zhu said in a blog post.

Property prices out of whack

Struggling to buy a house? It could be because our property prices are among the highest in the world when compared to incomes, writes Michael Janda.

However, Dr Zhu also noted that historically high housing prices do not automatically portend a crash.

"In some cases, this more detailed look suggests much more modest overvaluation than indicated by the house price-to-income and house price-to-rent ratios," Dr Zhu wrote.

"One example of this is Belgium, where the IMF concluded that despite the high valuation ratios, risks of a sharp correction of real estate prices appear contained."

The IMF is quick to add that this does not mean policymakers can be complacent.

It is urging regulators, like the Reserve Bank and the Australian Prudential Regulation Authority, to move from "benign neglect" and take a range of steps to contain housing booms.

"Housing is an essential sector of every country’s economy and has systemic implications, which is why we at the IMF are focusing on it not only in individual countries but on a cross-country basis," Dr Zhu wrote.

"What is clear ... is that monetary policy will need to be more concerned than it was before with financial stability and hence with housing markets.

"The interactions of various policy tools can be complex. But all this should not be an excuse for inaction.

"The interlocking use of multiple tools might overcome the shortcomings of any single policy tool. We need to move from 'benign neglect' to an 'all of the above' approach when it comes to policy choices."