EPA
Real estate prices have been rising for three decades
The latest economic research warns that the decades-long boom in construction in Australia could end soon, with most analysts agreeing that this will not happen this year. On the contrary, by the end of 2021, the opposite is announced – even a double-digit increase in house prices!
This trend of rising real estate prices, according to experts, could continue until the end of 2022, but after that the “boom” of real estate in Australia is expected to end.
Regulators in Australia are not expected to react this year due to the speed of real estate prices. Precisely because of the lack of regulatory intervention, most economists agree that real estate prices will probably rise by 10 percent or more this year.
However, analysts believe that the slowdown in further growth of real estate prices depends on several factors. First of all, from the future level of immigration, which has been almost stopped in the last year due to the pandemic.
Also, a lot will depend on how long the practice of working from home will be maintained and what the level of interest rates on loans will be in the coming years, considering that it is currently at a record low.
Factors of constant growth
ANZ Bank economist Daniel Gradwell says that house prices in Melbourne have finally recovered from the fall from last year, and that the rate of price growth is slowly catching up with growth in other Australian cities.
In his opinion, the main support for the growth of real estate prices across the country was a strong recovery in the employment rate, which was far faster than what had happened before.
With historically low interest rates, strong employment growth and high consumer confidence, the response to the government’s “homebuilder” program is, he said, unbelievable to say the least.
Gradwell pointed out that the demand for houses is simply booming, that the costs of building houses are growing rapidly across the country, while the costs of building buildings and apartments are falling.
However, in his opinion, there is a chance that regulators will react at some stage, as happened recently in New Zealand. Namely, as much as there is currently a benefit from the increase in house prices, it must be borne in mind that there are risks that could happen in the next 12 or 18 months.
Intervention next year
Christina Clifton, a senior economist at the Commonwealth Bank, also believes that regulators will not intervene this year. According to her, the State Reserve Bank (RBA) and the Australian Agency for Creditworthiness Regulation (APRA) have given priority to financial stability and lending standards, rather than house prices.
This means that they focused on key items, such as: the investor’s share in the borrowed money, the appropriate mortgage and the adequate ratio of the loan and the value of the purchased real estate. For now, all these indicators, according to her, are good.
Last month, APRA President Wayne Bayez said that the growth of real estate prices and mortgage debt in recent months is not a cause for alarm.
The third long-term “boom”
Economist Shane Oliver from AMP Capital pointed out that the growth of real estate prices in Australia has averaged about three percent per year in the last hundred years. In the meantime, there have been three major long-term ups, one by 1936, another by 1975, and a third that is happening now, as well as two major long-term downs.
The current long-term boom began in the mid-1990s and, according to Oliver, house prices ranged from well below the trend to well above the trend during that period.
This economist believes that the slowdown in population growth in Australia, which began last year, could cause outcomes from chronically insufficient supply of houses, all the way to oversupply. In this way, there would be improvements in terms of accessibility of houses for new buyers, as well as for renting real estate.
True, the real estate market can continue and surprise, if interest rates are even lower. But for that to happen, the RBA would have to adopt a negative interest rate on cash or return population growth to a faster level than expected when the borders reopen.
Houses are up to 15% more expensive
According to economist Shane Oliver, the cyclical rise in real estate prices is likely to continue next year. His forecasts indicate a price increase of an additional 15 percent by the end of next year.
How has New Zealand stopped growth?
The recently announced package of housing policy instruments of the Government of New Zealand, which reacted to stop the growth of real estate prices, is based on the following:
– elimination of tax deductions for interest on loans approved for investments in housing construction;
– extension of the deadline for payment of capital gains tax from five to ten years;
– favoring new buildings in these tax changes;
– introduction of the “change of purpose” rule – if family houses are sold within ten years and are subject to payment of capital gains, or if they are issued for a period longer than one year;
– raising the level of income and prices of houses in the government’s program for the purchase of the first house.
The idea was to stabilize house prices with these measures, to make it easier for people to become house owners, to prevent speculative investments, to increase the housing stock with “affordable houses” and to close the tax hole in the housing sector.
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