By Guest Blogger: John Lindeman, CEO
www.lindemanreports.com.au
With all of our major property markets back in growth and some bullish experts even predicting booms in 2021, John Lindeman gives us his take on what’s causing the rise in buyer demand, and what lies ahead for our property markets.
While most of the world continues its struggle to overcome the COVID-19 pandemic, Australia seems to have succeeded. We have put all those lockdowns, border closures and social distancing restrictions, plus the uncertainty and loss of confidence that came with them, behind us at last.
To stimulate our economy back into growth, our government is lending itself vast amounts of cheap money for massive job creation schemes, infrastructure projects and economy boosting spending programs. Because the property market is such a large contributor to economic growth and job creation, it has been one of the government’s main focus points.
Renters are buying homes and owners are upgrading
We are now seeing first time buyers being propelled into the housing market with easy, low cost finance and huge government property buying incentives. The number of first time buyers has doubled in recent months, pushing housing prices up in all areas where they are still affordable.
In addition, many existing home owners are taking the opportunity to upgrade to better homes in more suitable locations, causing a general price ripple effect to occur. Unlike our last property market boom, however, this rise in demand is not coming from investors who prefer big cities such as Sydney or Melbourne, but from owner occupiers, which means that it is taking place everywhere at the same time.
This will not lead to a boom, but a period of transition
The low cost of borrowing and availability of finance is behind this surge in buyer demand, as renters transition to first home buyers and first home buyers become upgraders. It will only continue until all those who want to and can afford to buy a home or to upgrade have done so. Interest rates can hardly fall any further, so the next housing market boom will not occur until demand rises from another source – more households.
This is not the first time our borders have been closed
We have experienced international border closures before – during the First and Second World Wars, when overseas travel was dangerous and migration came to a standstill. When our borders were thrown open again in 1919 and 1946 we experienced our highest population growth ever, as thousands of immigrants and refugees fled war torn countries to make a new start in Australia. As the graphs show, this huge rise in housing demand caused housing prices to boom in just a few years.
Despite this hard evidence which links high population growth to house prices doubling and even trebling in a few years, some cynics are claiming that this time round prices won’t double after our borders are reopened because they can’t.
Housing prices could easily double in a few years
I can make this bold prediction because virtually no one actually stumps up the entire price of a property when they buy – for first time buyers, the limit to affordability is not the price of a home, but the size of the required deposit and the ability to make regular repayments. For upgraders, the limit to affordability is the amount of equity they have in their current home as well as the ability to make repayments.
Right now, it is low borrowing costs that enable more people to buy, and to make higher bids, pushing prices up in the process. In future, it could be higher incomes, or even the return of inflation that enable prices to skyrocket. There is no upper limit, only temporary pauses while the market catches its breath before prices start to rise again.
The only significant change to our housing markets is that more people will prefer inner urban living, as future immigrants are likely to come highly urbanised societies in Hong Kong, Europe and the Americas. Coupled with the trend to workplace flexibility, units may need to be larger in future, with separate studies and private work areas. This is definitely a trend that developers will profit from if they pay attention right now.
In short, we have nothing to fear from the future performance of our property markets, and everything to hope for.
Sources:
Housing Australia, a Statistical Overview, ABS 1991, 1996, Australian Bureau of Statistics
Australian Demographic Statistics, 3101.0 Australian Bureau of Statistics.
Stapledon’s Index, Stapledon Nigel, Long Term Housing Prices in Australia
John Lindeman is the In-Depth columnist for Your Investment Property Magazine and a popular contributor to property related media. John also authored the landmark best-selling books for property investors, Mastering the Australian Housing Market and Unlocking the Property Market, both published by Wileys. Visit www.lindemanreports.com.au
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