Property update August 2010 – the election 2010 and population debate

PM Julia Gillard and Opposition Leader Tony Abbott

PM Julia Gillard and Opposition Leader Tony Abbott

Last month, I provided an outlook on the property market for 2010 amidst mixed messages from the media:

  • Softening auction rates* across major capital cities, especially Sydney and Melbourne is indicative of a cooling of the property market.
  • Higher Interest rates are putting a strain on households and affordability as new home loan approvals are decreasing.
  • Property prices are overvalued and there is an imminent property bubble.
  • The Australian economy will falter when the European crisis and US economy takes a turn for the worse.

There are 3 issues which will influence the way investors view the property market since last month:

1. Interest rates – the RBA has left the cash rate unchanged at 4.5% this month, citing that inflation is within the Bank’s comfort level whilst the world economy is still uncertain. This strategy by the RBA can be seen as a precursor that rates will remain steady over the next few month although the current cash rate is still below 10 year averages, hence, the upside is still strong.

2. Election 2010 – the respective major political parties will have policies which will significantly impact the property market in different ways. For example, the “hand on the heart” pledge by PM Julia Gillard to complete the rail link between Epping and Parramatta in Sydney by 2017 will have major implications on house prices in all the suburbs within this proposed new route.

3. Population debate – businessman and population control activist Dick Smith has dutifully re-ignited the controversial debate on population. Over the coming months and years, urban and rural planning policies as a result of this debate will impact the where and how we live.

Implications of the population debate

It is ironic how fast things can change. Only a few months ago, the Rudd government was talking about a “big Australia” of 35 million people and appointed a Minister for Population in Tony Burke. Many analysts and industry observers view the role as more of a Minister for ‘population growth’ rather than managing a sustainable population level which will support the continued growth of the Australian economy. The Gillard government has since put forward the notion of a “sustainable Australia, not a big Australia”. Whichever the case may be, it is important the incumbent government be held accountable not use the “sustainable Australia” argument to avoid responsibility and ease pressures on urgently needed infrastructure upgrades.

Notwithstanding the outcome of the elections on 21 August, some key issues surrounding this debate which would have implications on the property markets include:

  • The role of immigration policy which is largely predicated on importing skilled migrants into Australia to address the current skills shortage.
  • The role of the Federal and state governments in planning for the massive infrastructure upgrades required to accommodate a growing Australian population regardless of the eventual population target number.
  • The role of rural and urban planning in managing new housing estates at the opportunity cost of valuable agricultural land banks which hitherto sustain Australia’s food demand as well as a surplus for strong export sales.
  • The continuously changing demographics such as an increasing number of people living alone and smaller households, retirement of the baby-boomers, people working from home, casual employment, women delaying having a baby.

The issues above appear to point towards higher demand for housing as a result of organic and structural growth in population due to smaller households in higher volumes and the continued need of skilled migrants to support labour shortages and economic growth in general.

Unless new regional CBDs are earmarked for the future to ease pressures on major cities (eg recent discussions about Parramatta in Sydney), then popular residential suburbs within the 10km radius of work centres will continue to experience price pressures as land around these areas become increasingly scarce. The type of properties will move from the “suburban house on a quarter acre” of old to medium density housing closer to the major CBD precincts.

Some readers are debating whether to hold off buying now and wait until the end of the year where prices may soften as a result of more interest rates hikes. Depending on whether one is a first home buyer or investor, the factors above tend to support that, all things being equal, house prices are set to grow in the short to medium term.

Despite the removal of the First Home Owner’s Grant, I believe the inherent shortage of housing stock in and around major capital cities and the CBDs, growing population as well as the on-going strength of the economy are key factors in supporting house prices although increases from hereon will be more modest compared to the latter part of 2009.

Related posts:

*Auction rates account for a mere 10% of property sales in Australia. Whilst it is an indicative factor, investors need to look at individual suburbs, the type of property and the time of the year when property are sold. Auctions account for less than 1% in certain suburbs and winter is generally a slower market than spring and summer.

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