- A series of events since 2015 transformed Australian real estate into a grossly over-engineered system
- These events created today’s property boom, not COVID-19
- The current upward pressure on real estate is primarily due to insufficient resale and rental supply
The Property Tribune welcomes new contributor Simon Pressley, Head of Research at Propertyology and REIA Hall of Famer.
Last year, Australia had its lowest population growth rate in over 100 years, while property prices across most of the country increased by between 10 and 20%. Yes, you read that right.
We are now two years into a national real estate growth cycle that began six months prior to the arrival of COVID-19.
It is shaping up as becoming the second-biggest property boom in our nation’s history.
Median House Prices (30 years)
The current strong activity in property markets is another piece of evidence that ‘housing demand’ is not defined by population growth. Beware the ‘experts’ who consistently claim otherwise.
Simplistically, demand exists whenever one attempts to transact in real estate – either as a tenant (rental demand) or a property buyer (asset values).
There are significantly more real estate transactions each year from a location’s existing population than from those adding to a population.
Very few people spend their entire life living in the same dwelling they were born in. We are all only born once, but each time we move it triggers a demand for housing.
Real Estate Participation
As our own household structure, age and earning capacity change, we set new goals which include a desire to move into a different dwelling that best suits our own particular circumstances.
If you are an existing owner-occupier, pursuing your new goal is usually a two-pronged decision that involves the sale of your existing home along with finding your next one.
Others may wish to transact in real estate because they have a goal of one day becoming financially independent and a better lifestyle than an aged pension and superannuation can provide.
A series of events since 2015 transformed Australian real estate into a grossly over-engineered system that adversely affected owner-occupiers and investors. These same events created today’s property boom, not COVID-19.
Spread across two consecutive federal election campaigns, there was significant consumer uncertainty surrounding how real estate values might be affected by proposed negative gearing changes. Consequently, fewer Australians had the confidence to list their property for sale.
The process of acquiring housing finance also became unnecessarily restrictive. This also resulted in reduced resale supply because people could not upgrade without finance.
In addition to the two previous factors, rental supply was adversely affected because those who produce it (Aussie investors) were discouraged by new rental legislation that removed the fundamental rights of asset owners.
The graphic below contains indisputable evidence of how an over-engineered real system directly caused a huge reduction in the volume of resale housing supply along with a dire under-supply of rental accommodation in six capital cities and 200 regional cities and towns.
Australian Housing Supply
The rental supply in Australia is particularly problematic.
Research conducted by Propertyology has identified 34 individual cities and towns where the annual asking rent for a standard house has recently increased by $1,500 or more. In several locations, annual asking rents have increased by $7,000.
The ability of responsible borrowers to access housing credit improved in Q2 2019.
The RBA also made credit more affordable, and the federal government introduced a clever support package for first home buyers.
All of this occurred six to nine months prior to the arrival of COVID-19 and, collectively, started to release years of pent-up buyer demand.
Sadly, COVID-19 lockdowns have adversely affected jobs in CBD retail and hospitality as well as the airline industry. But there have been larger gains in jobs for tradespeople, in healthcare, manufacturing, agriculture, domestic tourism, renewable energy, e-commerce and the defence force.
So, overall, Australians are feeling better today about income security than a couple of years ago.
The most active buyer demographic during this property boom has been existing owner-occupiers.
Interest rate cuts and not being able to holiday overseas means there is more money in household budgets, leading to increased capacity to upgrade homes.
Some people are completely moving town, including a combined 64,000 (net) former residents of Melbourne and Sydney over the first 12-months post-COVID. Propertyology anticipates this trend to accelerate.
Population: Internal Migration
The work-from-home phenomenon is a major structural change that, for some, has been a trigger for ‘swapping’ dwellings to accommodate a new lifestyle that offers more flexibility and improved productivity.
The bottom line is that humans will always require housing and human mobility is a natural part of life.
The current upward pressure on real estate is primarily due to insufficient resale and rental supply from an over-engineered housing and financial system.