Is Australia’s property market going to crash?
Are we headed for the same fate as the USA, Ireland or Spain where property markets crumbled?
Well that’s what some commentators are suggesting.
They say Australia’s property market is a giant speculative bubble propelled by tax breaks, low interest rates and “liar loans” that have led to massive mortgage stress and that it’s all about to go bust, bringing down the banks and the economy with it.
While other, in my mind more informed, commentators say we’re different and we shouldn’t compare Australia’s property markets with overseas markets.
Is this true? Are we really different, or are we just kidding ourselves?
To find out I chat with Australia’s leading housing economist, Dr Andrew Wilson, chief economist of My Housing Market
The trouble is we’ve been hearing the same for years - calls for a property crash have been pumped out repeatedly since early last decade.
Here’s 7 ways our housing markets are different to overseas property markets:
1. Population growth is underpinning our property markets
We're growing at around 400,000 people per annum, but this is concentrated in our 3 big capital cities creating a strong demand for housing.
Particularly because many of the people migrating to Australia are at household formation age and they generally skilled and coming for jobs.
Initially they require rental accommodation, but eventually they buy their own homes.
2. We have a sound banking system
Australia’s banking system is well regulated and risk averse.
Even though our lending standards have always been stringent, they have firmed up following the Haynes Royal commission.
And recently the percentage of interest-only and high loan to valuation loans have been falling, meaning fewer borrowers are at risk.
In Australia borrowers have to guarantee their loans while overseas some lenders have non-recourse loans, where borrowers can hand back the keys and walk away if the value of their property falls. Remember the so-called NINJA (no income, no job, no asset) sub-prime and low-doc loans that surged in the US prior to the GFC.
3. Australia has a long term under supply of the right type of property
In general supply of new dwellings has not kept up with demand, thanks mostly to an increase in net immigration.
Sure we have an oversupply of high rise apartments, but these are the wrong type of dwelling often built in the wrong locations – not what many Australian families want.
At the same time councils are making it difficult for developers to build the type of property many Australians want – townhouses and large family size apartments in our middle ring suburbs.
4. Debt is not a real worry
Much of the increase Australia’s household debt is in the right hands having gone to older, wealthier Australians, who are better able to service their loans.
And much of this debt is “good debt” borrowed against appreciating assets – residential real estate.
5. Australian has a culture of home ownership
This is different to overseas where many people expect to be tenants for life.
In Australia many of our tenants are in the queue to become home owners.
6. Rental accommodation is in the hands of private investors
While overseas public housing is usually controlled by governments, in Australia the majority of rental accommodation is owned by private investors
7. The government wants us to own property
Because of our culture of home ownership the government encourages first home buyers with certain incentives and property investors with tax breaks.
While some are suggesting our property markets are being buoyed by greedy investors taking advantage of tax breaks such as negative gearing and capital gains tax exemptions, their importance is often exaggerated relative to the supply shortfall.
Negative gearing has long been a feature of the Australian tax system for business of all types and in today’s low interest rate environment it is not as big an incentive as it was before.
Think about it…if negative gearing was a significant driver of increasing property prices as some claim, then why have only certain markets flourished and others languish.
It’s dangerous to generalise
While it’s common to refer to “the Australian property market” there are multiple markets around Australia.
Each state is at its own stage of its property cycle and within each state there are multiple markets – different price points, different geographic locations, different types of dwellings.
For example, only Sydney and Melbourne experienced sustained and rapid price gains a few years ago and those markets are now correcting.
Our property markets are very different to overseas markets and it is ill informed to draw comparisons. There is no property crash in sight!
With thanks to PropertyUpdate.com.au and MyHousingMarket.com.au