Australia’s Housing Boom May Be Halted By Regulators
Some analysts are warning that Australia’s multi-decade property boom may be about to end, but most agree that will not happen this year with double-digit house price growth widely expected in 2021.
Despite concerns about the pace of property price growth in Australia, regulators may not step in this year, analysts have warned. Without regulatory intervention, most agree property prices will keep rising through 2021, probably by 10 per cent or more.
But looking further ahead, one leading analyst suggests Australia’s multi-decade housing upswing could be nearing its end and that prices could ease through the decade once this short-term price surge has ended. However, he said much depends on the future level of immigration, the persistence of the working-from-home phenomenon and the level of interest rates in coming years.
“The longer-term bull market, which has seen above trend growth in property prices since the mid-1990s, may be close to an end,” Dr Shane Oliver from AMP Capital said. The economics teams of Australia’s major banks have been monitoring property markets around the country.
ANZ economist Daniel Gradwell said Melbourne’s housing prices had finally recovered their declines from last year and the pace of price growth was slowly catching up with other cities. He says the strength of the recovery in national employment, which has been far faster than what occurred after previous downturns, has been a major support for property prices around the country.
Gradwell said ANZ’s job advertisements were sitting at a 12-year high and job creation was running strongly, which suggested any job losses from the JobKeeper program finishing would only cause a “temporary blip” in the unemployment data. We have a decent level of confidence that we’ll keep on creating jobs at a decent pace.
He said with historically-low interest rates, strong employment growth and high consumer confidence, the response to the government’s HomeBuilder program had been nothing short of incredible. He said demand for detached houses was booming and construction costs for houses were rising quickly around the country (while construction costs for units and apartments were falling).
However, Gradwell said there was a chance regulators would have to step in at some stage, as has happened in New Zealand recently. As much as there are some benefits to rising prices at the moment, in terms of the wealth effect and the impact that has on peoples’ spending patterns, I think it’s also worth keeping in mind where some of the downside risks might play out over the next 12 or 18 months. However, economist Shane Oliver from AMP Capital has taken a much broader look at Australia’s property prices.
He says real property price growth has averaged around 3 per cent a year in Australia over the last hundred years and there have been three major long-term booms (highlighted by the green arrows in the image below) and two major long-term busts or weak periods in that time. He said the third (and current) long-term boom began in the mid-1990s and it had taken real property prices from well below trend to well above trend.
If inflation is bottoming, then so will interest rates and the super cycle of each new economic slowdown leading to even lower mortgage rates and ever-higher debt levels driving ever-higher house prices relative to wages will come to an end. He said the collapse in population growth over the last year could see a shift from chronic undersupply in housing to oversupply, as long as population growth remained constrained. If population growth remains as weak as the government is projecting over the next two years, and construction stays up, we will move into a clear oversupply.