The housing market looks like it is about to turn.
Three main signals are present:
- Auction clearance rates are rising. Melbourne is the nation’s auction capital, and preliminary clearance rates over the weekend were a middling sort of 73%. That’s by no means a boom but is well above a slump. And the trajectory is upwards.
- Interest rate rises are over — or all but. Markets pricing in a small chance of a rate rise in the next two months are pricing in a much higher chance of a cut in the six months thereafter. It looks like new mortgages won’t get much more expensive than they are now.
- Migrants are pouring into the country at a rate comparable with the fastest pre-COVID years. Meanwhile rents are frothing up, pushing consumer price inflation to uncomfortable levels. As property prices fall and rents rise, property yields go up.
A few years ago, investors would have been lucky to make 3% yield on an inner-city rental in Sydney or Melbourne. Now it’s approaching 5%. If they own that investment property outright, that’s a credible return. If they have to borrow to buy it, they can take the tax advantages of negative gearing.
Rising yields will tempt some property investors back to the market, and that might make people think a fire is about to be lit under the famously resilient Australian property market.
The risk for young buyers
Don’t be misled. The history of house prices is not just a tale of rising prices. There can be long flat spots. The end of a fall does not have to mean the start of a rise.
Young buyers are wearing 1990s fashions again — beige pants and baggy T-shirts are back. But they may not be aware that in the ’90s, Australian housing prices went nowhere for a decade. Prices were fairly flat, as the next chart shows. It’s an index chart, with 2010 set equal to 100, to make it easy to compare changes over time.
The chart shows both nominal and inflation-adjusted (“real”) prices. Real prices were even flatter than actual prices. Owning a house didn’t get you ahead of inflation in the ’90s.
The key decades to focus on in Australia are the 1980s and ’90s. Other than a quick burst of activity around 1989, house prices don’t budge much in inflation-adjusted terms. They were a decent way to keep up with inflation, mind you, but not a good way to get ahead.
Of course, Australia’s house price growth is world-beating. There are lots of places out there where owning property has been a dog of an investment. To illustrate the point, we might as well go from one extreme to another and look at Japan.
As the next chart shows, Japanese house prices are where they were in the late ’80s. And in inflation-adjusted terms, they are no higher than during the late ’70s.
I just got back from Japan, incidentally, and from one rural hotel I stayed in I could see an enormous empty apartment building. Buying an apartment there outright would cost about ¥10,000, roughly US$100, I later found out. Japan’s property market is in bad shape!
One explanation is that Japan’s population is falling. Surely it is Australia’s population growth that has provided extra demand and undergirded property price growth.
But debates are raging about the future of population in Australia. Never before has migration been discussed in such frank economic terms, with all its costs and benefits laid bare. A cut in migration is quite possible, and if population growth becomes smaller, the relentless pressure on house prices may decrease. That could leave the most recent generation of buyers with less capital growth than they expected.
The lesson of the past two decades is that property investing is a surefire way to wealth. But economic opportunities change over time and the easy goals that one generation was able to score are not always there for the next. Buyer beware.
Fixed that for you.
Typical pre-COVID NOM was 200-250k. Highest was 300k immediately after the GFC.
NOM for last year is estimated (by Westpac) at 400k, and projected at 300-350k for the following several years.
To put that in a more relatable context, Australia’s population is going to increase by a Canberra every year for the next few years (at least, probably longer), and there is Buckley’s chance we are going to build a Canberra’s worth of houses, schools, hospitals, roads, public transport, or indeed anything else necessary to actually support that, any more than we have in the last decade.
I can’t recall seeing any meaningful discussion about this anywhere remotely mainstream. The popular narrative remains infinite growth forever and always with zero negative consequences, and questioning it is verboten.
So, the rental crisis is only just warming up, there’s little chance of wage rises on the horizon, especially at the lower end, and you’d better hope you don’t get too sick because hospitals are going to be increasingly overwhelmed.
Don’t look to Government to do anything useful about it either, even aside from the obvious step of limiting demand – the HAFF is just a scam to pour money into the finance sector, and will no more help build houses than the Emergency Response Fund (with the same farcical structure) helps to protect from natural disasters.
/rant
Population growth is an inevitable consequence of living on a scarcely populated continent with an ageing population and skill shortages and in a world of more people during a period in history when the world has never been more integrated.
That is why no serious politician in Australia or indeed most developed countries is promising to reduce immigration, and why it’s only populists (most of whom also happen to be climate change denialists).
Climate change denial has a lot in common because it’s a form of denial. Denial is great. You can pretend problems away rather than offering solutions.
The issue with Australia’s housing affordability is Australia’s terrible housing policies. They’re even more terrible when you consider that it’s generally accepted we need population growth.
Our cities have half the populations of most major cities in the world and the house prices are some of the highest in the world.
This could be fixed tomorrow by:
a) improving rental rights including requiring longer fixed rent leases;
b) the government requiring employers to allow workers to work remotely if they can do their jobs remotely which would give people the option of leaving centres;
c) turning increasingly redundant commercial and retail space into residential and aged care;
d) banning auctions;
e) regulating estate agents; and
g) removing negative gearing.
The “skills shortage” is mostly a myth. You only have to look at the list of skills in supposed shortage to see that (though it’s hardly the only obvious indicator)
Employers have been complaining about skills shortages since forever, and Australia has been running one of the highest rates of (supposedly) skilled immigrants for the better part of twenty years.
If there really were genuine skills shortages, then real wages growth would be strong, real unemployment would be low and nobody would be asking for university degrees for entry-level jobs.
What they really mean is there’s a shortage of Australians prepared to work for exploitation wages.
An “aging population” is another common refrain that stands little actual analysis. Not only are people working longer, but enormous swathes of jobs will shortly be wiped out by advances in technology. Then of course there’s a simple truth that immigrants also get old. If anything, there’s a problem of oldies hanging on in jobs preventing younger workers from moving up.
The climate change denialists in the LNP started and oversaw enormous rates of immigration for most of the last twenty years. Not even a correlation there.
No Governments are going to consider reducing immigration because they are all utterly captured by the supply-side, neoliberal economic ideology that demands it. They believe the only metric that matters is GDP, and the best (ie: easiest) way to increase GDP is with more people.
Generally accepted by who ? The kinds of people who think infinite growth forever and always is sustainable because of
magictechnology ? The kinds of people who think Unions don’t help workers ? The kinds of people who are already well established in property ?Australia does, indeed, have many terrible policies at the core of its housing crisis, and these absolutely need to be fixed.
However, all of the problems they create are made much, much worse by adding another few hundred thousand people every year – and none of them are helped by it.
No it couldn’t. Nothing can fix this problem that’s been building for decades “tomorrow”, not even with a generous interpretation of, say, a couple of years for “tomorrow”
The fundamental problem is too many people, and not enough houses (/houses of the right type).
None of your proposals will fix anything “tomorrow”. Arguably most of them will not really fix much ever because the only one that even attempts to address the supply is (c), and it has the problem that converting commercial property to residential property is often not cost-effective or even possible. Most of the “problems” you highlight evaporate once there is sufficient supply to meet demand.
The only thing that can help “tomorrow” (ie: in a relatively short timeframe) is reducing demand, because it is the only variable that can be changed arbitrarily and quickly. Housing supply (not even touching on schools, hospitals, roads, public transport, other infrastructure, etc) is literally years behind already, before considering the massive new demand coming down the pipe over the next few years. You could also get some additional short-term supply boost with some legislative and tax changes aimed at AirBnBs.
Immigration should be capped at <100k/yr (arguably <50k/yr) for a decade until housing, infrastructure and employment has caught up. It should prioritise humanitarian intake and genuine skills shortages. Once rental vacancy rates are averaging 3-4%, house prices down to something vaguely sensible like 4-5x average wage, real wages growing and real unemployment comfortably in single digits, then consider increasing it slowly over the following decade. Strict limits on “student” work rights and post-graduation residency requirements (say, a STEM degree and HD GPA) should also be instituted.
Whether or not you agree with me the simple fact is the population is going to increase.
There’s not a single credible political party offering your simplistic solution. Your choice is One Nation. Do you ever wonder how that is?
Do you think it might be more complicated than that?
You can either accept the population is growing or be angry about it. Unfortunately many people are getting angry which is driving support for the far right.
Your other points are just more denial.
Clearly there is a skill shortage given the shortages in key sectors including health and aged care.
Your wonderful technological solutions don’t solve the problem with areas that require humans like, again, health and police.
In fact the main growth areas are not in the private sector but in essential services. Even if we adopted socialism we’d still need doctors, nurses, police, teachers, scientists, engineers, and people to fight extreme weather events (and an army).
Also if you, like 99% of people, believe that the government needs taxpayers to pay taxes to pay for stuff, how do you think we’ll support public services and pensions as the working to non-working ratio drops from 4:1 to 2:1?
It’s simply not as easy as you, Pauline Hanson, Donald Trump and the Brexiters think it is.
Well that’s a circular argument, since economic orthodoxy demands supply-side solutions and anything to the contrary is, pretty much by definition, not credible.
But I’m not the one with a “simplistic solution”. It’s the people whose answer to every question is MOAR MOAR MOAR THE MARKET WILL SOLVE IT AND THERE ARE NO CONSEQUENCES that are peddling a “simplistic solution”.
The solutions to overconsumption and sustainability – assuming you want to stay within some reasonable bounds of ethical and moral behaviour – are anything but simple, and the hatemongering muppets at One Nation sure as **** haven’t got a clue how to do it.
Right. Like CO2 emissions ? Accept they’ll keep increasing or be angry about it ? ::eyeroll::
The big problem in a local context is not population growth per se – though without some serious technological advances it can’t continue here or anywhere else – the problem is very fast, unmanaged, unsupportable population growth and the negative consequences thereof.
Immigration at 100k/yr is still overall population growth and is still far more than was historically typical until Howard pumped it up in the 2000s.
There’s not a skills shortage where wages are low and stagnant, while profits are huge and growing.
Leave the poor straw man alone.
There are plenty of humans. If they need different skills to be useful, the correct approach is to re-skill them, not discard them.
All the doctors, nurses, police and teachers in the country total barely a million people. Maybe another 200,000 scientists and Engineers.
(Federal) Government pays for things by creating money. Taxation destroys it.
However, if you insist on thinking about it in the “taxes pay for stuff” way, then obviously you tax the people with the most. This already is, and will become increasingly more (because of people like you), capital holders, not workers.
We don’t need workers to pay taxes. We need workers to provide sufficient goods and services for our own consumption, or to trade with others for things we lack. The best way to do this is through increasing productivity, not throwing more bodies at it like a pre-industrial feudal lord.
Well at least you understand how the government budget works (many calling for a cull don’t) but population growth has got nothing to do with economics.
You’re talking about people here – human beings like you and me.
They exist whether you like or not, and they cannot be drastically reduced in the short to medium term.
If we want to tackle emissions we have to factor in the number of people who actually exist rather than the number of people we wished existed.
And I can’t really see how reducing immigration reduces emissions since these people still exist. And actually the best way to get the population numbers down is for people to leave their villages just like when the Irish emigrated.
The thing about your winning solution is that it helpfully involves blaming others for the problems which is another reason why populists like Hanson and Trump like it.
LOL. Blackholed. Let’s see which part is too risque for the modbot.
“Cull”. ::eyeroll:::
Today I learned reducing immigration is equivalent to m*rder.
Hey Siri, what’s a straw man argument ?
Nobody here is talking about culling, or even reducing population. I am only talking about slowing its growth – somewhat – to be closer to what it was like twenty-odd years ago (and the century preceding that).
And population growth has got a great deal to do with economics. Unless you want to try and argue people have nothing to do with economics ?
Next you’ll be trying to tell me that people don’t have any impact on the environment.
Don’t change the subject.
This is about the local consequences of local population growth.
Emissions is a largely different discussion, though the more people there are, the worse they are and the harder any targeted reductions will be to achieve.
Obviously any emissions targets that might have been considered a decade ago will be much harder to hit now there’s another Sydney’s worth of emissions to account for.
The thing about your winning solution is that it helpfully involves blaming others for the problems which is another reason why populists like Hanson and Trump like it.
I certainly do blame the “others” responsible for implementing terrible immigration (and housing, and environmental, and in general) policy. Who else would you suggest I blame ?
It is not true that “Our cities have half the populations of most major cities in the world…”.
Apart from some of the capitals, there are NO cities of 5M+ in Euroland and in the USofAs only NY (8M+)has a higher population – even LA is barely 4M.
On the other hand, in most western countries hundreds of cities thrive between 100-400K and thousands under 100K.
Australia’s largest inland towns – Orange, Dubbo, Bathust etc are under 40K -eg Broken Hill is <20K.
Disagree as FIRE agitprop is taken at face value i.e. presumed to be valid & reliable indicators (described as ‘having the integrity of custard’), sentiments around ‘property ownership’, demographic data illiteracy on immigration/population and finance too, helps support same FIRE agitprop.
The misunderstood NOM (UNPD) snapshots are suboptimal in showing trends versus OECD data, as net migration misses qualitative diversity hidden by headline numbers, inflated by expansion to 12/16 months+ in 2006 sweeping up more temporary ‘churn over’ esp. students, but conflating with modest permanent migration for headlines describing all as ‘immigrants’ (simply false or linguistic trick, missed by all media); statistics 101.
Property or FIRE sector agitprop obsesses over sentiments e.g. relying upon public advertisements (yet miss many apartment developments?), asking prices, rubbery clearance rates, happy clappy auctions for media and preference for anecdotes over hard data analysis; if rental (seasonal peak) &/or housing crisis, why are house prices stagnating?
Much property, except particular premium postcodes, has stagnated over decades when applying basic 7% investment rule (= prices doubling every decade) to tread water, and if value is based on potential rental income, again over priced vs. real value.
One driver now readily apparent, is the baby boomer bubble or ‘bomb’ in transition to retirement, downsizing & then mortality, with the ‘big die off’ to start before the end of the decade; backgrounded by working age of peak spending & investment, has passed the ‘demographic sweet spot’ leading to ever increasing old age dependency ratios.
OECD Old Age Dependency Ratio does not suggest high immigration &/or fresh population growth via fertility, but decline?
https://data.oecd.org/chart/71PZ OECD (2023), Old-age dependency ratio (indicator). doi: 10.1787/e0255c98-en (Accessed on 28 March 2023)
However, we are told of the existential threat and/or potential gains through undefined ‘immigration’ and ‘population growth’ when permanent population is stagnant, and supposed growth is more NOM churn over or ‘froth’ on top.
Good news, further decline in values will track population ageing and decline leading to readjustment of property values, downwards…. younger generations keep your powder dry.
This is just the same boilerplate bull**** you always write.
The ABS is not lying.
The immigration department is not lying.
Rental vacancies are incredibly tight.
People are struggling to find homes.
Rents are skyrocketing.
House prices are only “stagnating” if you ignore the previous twenty years of massive growth.
All immigrants do consume resources, regardless of what visa they have.
Enormous population growth has consequences, and they are mostly negative for anyone who isn’t an existing property holder or otherwise benefitting from one of the immigration ponzi parasite industries, which I have to assume you are one, the other, or both of.
Think this indicates you have lost an argument without even starting; shooting messengers is the reaction of those who have no credible analysis i.e. do not refer to data?
You use an honorific suggesting an education, can you form a question based on credible analysis that allows a response vs. abuse?
That precludes anything from SPA, MB & ‘Australia’s best demographer’ 🙂
LOL. Top-shelf irony.
I have referenced data multiple times. There is nothing to argue here because you sImply assert that it is false.
You offer no analysis on the consequences of massive, mostly low-skilled, immigrantion, just regurgitate neoliberal rhetoric and supply-side dogma.
I would be wary of thinking the 1980s and 1990s have much application to now. After Howard won government in 1996 he proceeded to consolidate housing as a speculative commodity and ramped up immigration by somewhere close to 200 per cent from the 1980s. The assumption was clearly that infrastructure, roads and PT and the rest, was under-utilised and had plenty of slack which would yield free revenue at no cost. I mean, after all, we didn’t need men with sticks to push people into train carriages yet and so forth. These were structural changes, they were followed by constant growth in house prices and they have not gone away. The Federal government remains firmly wedded to the them. So if you can buy now, choose carefully, but I would buy.
Yes, the world of housing is a different beast since the rules changed with Howard.
At some point the whole thing must come tumbling down, but good luck trying to guess when – I’ve been waiting for over ten years thinking it can’t possibly go on any longer.
“costs and benefits laid bare”. I have not seen too much mention of the costs. Our massive population growth rate is a cause for concern. I doubt if there are any third world countries with a population growth rate higher than ours. Last figures I saw in the Home Affairs website would have us increasing in population by well over a million a year. You cannot have that sort of massive increase without huge demand on the housing market. Mind you the pro-growth spruikers will just claim it is a supply problem.
A Productivity Commission report I read basically contradicted almost every assertion as to why we somehow “need” this massive population growth. The latest increase is supposedly required to provide skilled workers. We have been doing this on steroids for over twenty years and we still have a skills shortage. Data I read showed that immigration increased demand for skilled workers more than it supplied in skilled workers so perhaps the so called solution to the problem is the cause of the problem.
Fundamentally, the immigration system is not setup to filter for genuinely skilled workers, it’s setup to maximise low-skill, low-value, low-productivity, but most importantly low-wage, workers.
Implement even a simple and basic quality control for “skilled” visas, like a salary floor of the average full-time wage, eliminates something like 2/3 of supposedly skilled immigrants. Any suggestion of doing so, of course, has the vested interests screaming.
Hmmm..
“The lesson of the past two decades is that property investing is a surefire way to wealth.”
#JesusWept
Jesus would. Right now, we need the Jesus that laid into the money changers to do the same thing to the real estate barons.