No, probably not, writes Lachlan Goddard from Real Estate Conversation.
It’s impossible to tell the future, but it is possible to have an understanding of what drives the value of housing in Australia and then track how these factors will shift over the coming years.
What Determines The Price Of Housing?
Many factors come into play when determining the price of an individual home. However, from a macro level, the below five components tend to be the main influencers of house prices:
Performance of the wider economy
The balance of how these key metrics plays out tends to determine whether the value of housing will track upward or soften. There is no exact formula as to how much each of these impacts house prices, but understanding the interplay between them can give us some confidence as to why housing might cost what it does in a particular area.
Now, with this in mind, the question of whether property prices are about to crash or not becomes easier to answer with a certain degree of confidence. We do this by asking the below questions:
Will Our Population Stop Growing?
Higher population growth has a positive impact on housing values and we know that Australia’s population is going to grow. The Australian Bureau of Statistics predicts that our country will be home to anywhere between 36 and 48 million residents by 2061. Queensland, New South Wales and Victoria are going to receive the lion’s share of population growth over this period and most projections show Melbourne becoming Australia’s largest city in terms of population in the coming years.
For some perspective on the level of population increase that we are experiencing, consider this. Melbourne’s population grew by approximately 150,000 people last year. This is an average increase of about 2,800 people each week. On top of this, the average household size in our cities is trending downward, creating a need for a higher number of dwellings which is likely to support the underlying value of property in our cities. In 1911, the average Australian household was home to 4.5 persons, whilst most recent data shows this number has slipped to 2.6 persons per household.
For more information read here:
Are Interest Rates Going To Go Up?
An increase in interest rates would put downward pressure on the price of housing. We currently have record low interest rates that are likely to increase. But by how much and when?
The International Monetary Fund (IMF) recently published an outlook paper on the Australian economy with positive news in this regard. IMF predictions have the mortgage lending rate rising by just two percent over the next five years. This outlook is positive because it represents a relatively small shift over an extended period. However, interest rate rises are one of the biggest threats to the Australian housing market, so mortgage stress should be treated with an appropriate level of caution and seriousness.
Will The Australian Economy Keep Growing?
Yes, it seems so. A strong economy supports home values because it allows people to purchase new homes with confidence and creates wealth so that more people can get into the housing market.
The Reserve Bank of Australia and the IMF are both reputable sources to consult in relation to what our economy may do. The IMF predicts consistent (albeit moderate) GDP growth between now and 2023 of about 3% per annum. Their reasoning for our economy’s predicted growth is predominantly due to consistent employment growth, public and private investment and consumption.
Our Reserve Bank has a similar outlook on economic growth in Australia. Their predictions are slightly more bullish than the IMF, however. But not by much.
This article doesn’t allow the space to fully analyse the above reports on our economic outlook. Obviously there are many nuances to the economy and many potential risks that could slow economic growth. However, both of these sources are reputable and reliable indicators of the likely overall direction of our economy.
Is The Government Investing In Infrastructure?
Infrastructure is key to supporting the value of property. Roads, schools, hospitals, public transport and communications networks attract people to certain areas and allow cities to operate efficiently and thrive.
The current Federal Budget has allocated approximately $75 billion to enhancing our countries infrastructure.
On top of our deep infrastructure pipeline, it’s probably worth noting that a contributing factor to the premium value of Australia’s property is the world-class nature of some of our current infrastructure. Australians love to complain about our sub-standard public transport. But beyond this, we are lucky to have top quality educational institutions, health care centres, arts precincts and more. All of these make our cities attractive on the world stage, bringing skilled workers into our country who contribute positively to our economy and way of life. This lifts the underlying value of Australian property.
Will We Continue To Have Fiscal Policies That Support The Housing Market?
It is difficult to predict which direction government policies will head in.
Historically, Australian government policies have tended to treat property owners favourably. Currently, our principal places of residence are exempt from capital gains and our investment properties receive generous tax benefits. It may be the case that government policies continue to support home ownership and encourage investment in real estate. However, there are many advocates for a shift in housing policy that is less favourable to homeowners.
A recent example of government policies impacting the housing market can be seen with the increased cost of purchasing faced by foreigners. This caused the number of home purchased by non-Australians to dip dramatically. The amount of power that the government holds to influence our housing market shouldn’t be underestimated.
Whilst it’s important to take note of some of the larger forces that shape our housing market, they are largely out of the control of everyday Australians. It’s great to understand how these factors cause fluctuations in our markets, but trying to find the perfect time to buy and sell real estate from a whole market perspective tends to be a fruitless exercise. Real estate is simple. You buy well-designed properties in highly sought-after area that are close to transport, schools, shops, jobs and parks and then you hold those properties over a long period of time. People who follow these rules tend to win over the long term.