Cross-country comparisons of house prices against incomes and rents are inherently problematic, but comparing the total value of a nation's housing stock against the size of its economy makes for a more useful comparison.
Australia's ratio of housing stock to gross domestic product increased by more than 50 per cent from the mid-1990s, peaking at 3.3 times GDP in 2007 and 2010. It has since fallen back to about 2.9 times GDP, similar to that of New Zealand and Britain but much higher than the ratios of the US and Canada. By international standards, this simple measure confirms the view that Australian housing is relatively expensive but by no means head and shoulders above every other country's.
Rising housing debt was the key driver of Australian home prices until 2004 but strongly rising incomes from the commodity boom have played a greater role since.
A reversal of this trend could prompt a severe correction of house prices. A slowing Chinese economy or an increase in global commodity supplies could cause a sharp reduction in incomes and employment.