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US experts claim property 'bubble' is set to pop - but have they missed something?

Most local economists say we do not have a bubble in Australian house prices. A bit overvalued, yes. But not a bubble. So why is it that overseas economists - such as Nouriel Roubini, the professor at New York University who predicted the collapse of US house prices that led to the global financial crisis, and Yale professor Robert Shiller, joint winner of the Nobel prize for economics - beg to differ?

Another American economist, Harry S. Dent jnr, in his new book: The Demographic Cliff- he's promoting it in Australia next month - makes special mention of Australia. He believes that house prices are unsustainable. But while others warn of a bubble in Australian house prices, Dent also identifies a possible deflation trigger - a crash in the Chinese housing market.

While Sydney and Melbourne house prices are high at almost 10 times income levels, the ratio is 35 times in the major Chinese city of Shenzhen. Dent says the collapse of Chinese housing prices will be the biggest housing crash in history. It will cause commodity prices to rapidly fall and cause the fall of Australian house prices.

At a ''bare minimum'' [Sydney] home prices will fall 27 per cent and return to what they were in 2005, Dent says. Dent writes a widely followed financial newsletter and his 2009 book, The Great Depression Ahead, was a bestseller. He tends to analyse economic trends through demographics. And Australia's population is ageing more slowly than many other developed countries.

Dent says Australia sailed through the global financial crisis, ''but this time around your real estate is among the most overvalued in the developed world, commodity and resource prices are falling and China has the greatest real estate bubble that looks set to burst''.

But do Dent and others have sufficient understanding of Australian real estate? Or are they putting Australia alongside other countries on fairly simple metrics? Unlike most of the rest of the developed world, we live in a handful of cities where the release of land on the outskirts of the cities is constrained and immigration remains strong. The tax system favours home ownership and property investment.

For investors there is ''negative gearing'' where, if the rent does not cover the interest the shortfall reduces the investor's tax liability. And the primary residence is treated very favourably under social security rules. The family home is not counted under the assets test that applies to the age pension. The generous tax breaks help induce the strong demand for property.

Whether we are in bubble territory or not, the good news is that the rapid price rises of the past year have moderated.

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