Australian Property Market Update: Latest Trends in Housing Demand, Supply, and Pricing

Terry’s View: Ending Negative Gearing Won't Solve Anything

It’s become fairly standard practice whenever an election is in sight for one side or the other of politics to try and curry favour with voters by once again demonising property investors.

The next Federal election does not need to be held until September 2025, and already the calls to scrap negative gearing have started.

Aside from the fact neither major party is likely to get rid of negative gearing, even if they did it wouldn’t fix Australia’s housing crisis, if anything it could make it worse.

The loudest detractors generally can’t explain what negative gearing is, how it works, why it’s bad and how ending it will solve all the problems in the housing industry.

Those who do know how it works will tell you the consequences of getting rid of it will likely far outweigh any advantages.

Australia did get rid of negative gearing in the 1980s but backflipped within two years after it made the housing crisis worse. There was a serious shortage of rental properties, and higher rents, and it didn’t make property cheaper.

The same thing is happening in New Zealand now, where they are once again reinstating it.

A recent survey of experts polled by the Australian Financial Review came to the conclusion that investors will sell up, meaning fewer rental properties at a time when vacancy rates are the lowest on record.

Any benefit from price falls, which are hypothetical and not based on any precedent or research, would be modest, potentially short-term and effectively traded off against a consequent squeeze in supply.

Their overwhelming message is - BE CAREFUL WHAT YOU WISH FOR!

Affordable Housing Solutions

Australia can learn plenty of lessons about how to make housing more affordable for essential workers from overseas.

An analysis by Professor of Planning at Western Sydney University,? Nicky Morrison, says that soaring housing costs in Sydney, Melbourne, and Brisbane are squeezing essential workers out of the communities in which they work.

Anglicare Australia’s latest Rental Affordability Snapshot of properties listed for rent shows only 3.7% are affordable for a teacher, 2.2% for an ambulance worker, 1.4% for a nurse and 0.9% for an early childhood educator.

She says one solution is for Australian developers to be required to allocate affordable housing for essential workers with prices below market rates for renting and buying.

Innovative financial models, such as shared equity schemes in which the Government or another investor covers some of the cost of buying the home in exchange for an equivalent share in the property, have also worked overseas.

Morrison also believes the use of surplus public land for essential worker housing can work.

“It is a strategic way to deliver affordable housing near key public sector employers,” Morrison says.

“We need to ensure essential workers can afford to live near their workplaces while not sidelining everyone else in need of affordable housing.”

State of the States

Construction work being done is now higher than the decade average in seven of the eight states.

The latest CommSec State of the State report says the result includes residential, commercial and engineering work completed in the June quarter.

Victoria took out the top spot for construction work completed, with it now 13.5% above its decade average, ahead of South Australia, 13.1% above its decade average.

In the ACT, construction work completed is just 0.04% above the decade average, while the Northern Territory is 37.2% below.

In the past 12 months, new residential dwelling starts are highest in Western Australia while Queensland and South Australia have solid results as well.

The report says construction work in the past 12 months has increased in Western Australia, Queensland, the Northern Territory and Tasmania.

Queensland is now in the top spot for home lending in the past 12 months, up by 27.4%, followed by Western Australia, up 21.5%, South Australia, 12.3%, Tasmania, 12.1%, NSW, 9.9%, Victoria, 8.8%.

Western Australia is now leading in Australia in terms of the strength of its economy, for the first time in a decade.

South Australia is a close second and Queensland is a “big mover” up the ranks from fifth place three months ago to third place.

Is A Boom Looming?

The Australian property market could be on the cusp of another boom, according to analysis by Domain.

It says a rate cut, which many expect early next year, will give potential buyers more borrowing capacity and deliver them more money to compete for properties.

Domain chief economist Nicola Powell says house and unit prices in Sydney, Brisbane, Adelaide, and Perth hit new records in the September quarter and she believes once rates start to go down, buying activity and prices will go up.

Even in a higher interest rate environment, Sydney’s median house value increased by 0.6% to $1.65 million, and the unit value rose 0.9% in the June quarter.

Brisbane’s house value rose 1.5%, and units 3.3%, while Adelaide’s house value is up 4.2% and units 3% and Perth is up 3.1% and 0.9%.

Just two weeks ago the total value of the Australian property market reached $11 trillion for the first time.

CoreLogic executive research director, Tim Lawless says the immediate outlook for the housing market is for further growth but a continuation of a gradual loss of momentum and increasing diversity across cities and regions.

He says the upside of the housing market is improving sentiment amid a slowdown in inflation, tight labour markets and a consensus that the next move in interest rates will be a cut.

Australia's Inflation Rate Drop?

Australia’s inflation rate has dropped to its lowest level of growth in more than three years, but an interest rate cut still remains unlikely when the Reserve Bank of Australia meets next week.

The Consumer Price Index rose 2.8% in the 12 months to September, down from 3.8% growth in the 12 months to June and slightly less than many economists were predicting.

Australian Bureau of Statistics head of prices statistics, Michelle Marquardt,?says the September quarter growth was just 0.2%.

She says although prices continue to rise for most goods and services, the inflation figures were offset by large falls in electricity costs and petrol prices.

While insurance costs rose by 14% and childcare by 12.1%.

Although 2.8% appears to sit within the RBA’s target range of 2% to 3% for inflation, which may trigger an interest rate drop, it uses a different figure to calculate what the inflation rate is.

The RBA analyses the data using the “trimmed” inflation rate which takes into account other insights of how inflation is trending which in this case makes it 3.5%.

Last month RBA governor, Michelle Bullock said they wanted more proof that inflation was “sustainably” within its 2% to 3% target range before it cut the official interest rate.

The RBA is meeting on November 4 and 5 but after the inflation figures this week most economists don’t believe it will move to cut interest rates until early in 2025.

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