If you're looking for a housing market recovery, look first for a federal election
If you're looking for a housing market recovery, look first for a federal election
By Catherine Cashmore
Tuesday, 17 July 2012
There may be some reservation involved when it comes to census time. Handing over details such as family income and household budgets when you’ve got no idea where the data will go once it’s been collated understandably causes hesitation. However, I have no qualms – I’m one of those annoying people who will fill out the form online before the hard copy even hits the doormat. The results simply fascinate me. They provide a wealth of information for property investors, home owners, renters, and just plain nosy citizens wanting to gain perspective on where we stand in this broad, diverse society of ours.
The results however are hardly surprising for most that keep track of price movements and pressures of affordability. Despite the recent downward spiral in property prices, housing – particularly along the eastern seaboard – is becoming increasingly unaffordable for a large proportion of young residents.
It’s therefore no surprise to see the numbers renting across the nation increasing from 27.2% to 28.7% since 2006, with yields up by a whopping 50% (and up as high as 77% in Western Australia).
The figures reported indicate 34.5% of 30- to 39-year-olds now live in rented accommodation and clearly struggle to save a deposit while servicing rising rental costs. Wage growth for the vast proportion of ordinary folk simply isn’t keeping pace – particularly if you haven’t got your foot on the ladder in the first place.
It’s not a case of home ownership being out of vogue, given the option between renting for life or owning, most would choose the latter. However, the debt-fuelled inflation that spiked property prices prior to the GFC, along with poor planning for population growth and other policy initiatives such as first-home owners’ grant – often laughably promoted as “aiding” housing affordability – have in turn pushed ownership off the table for a growing proportion of young residents.
Along with this data, outright home ownership is also declining. Families with children in particular are suffering – recording a decrease in their ownership rate from 79.5% to 77.2%. Other reports suggest, had ownership percentages stayed at the same level as the “peak” recorded in the 2006 census, we’d have welcomed an additional 34,000 into the property market and yet meanwhile, we hear our leaders proclaim their intention to increase the number of home owners, because if nothing else, it makes good policy speak.
The question seems to reside around whether, as a nation, we have a responsibility to provide ownership as a national right for all (importantly, low-income families) who hanker after the great “Australian Dream”. In truth, more than expressing it as such, it became viewed as such after World War II. Along with this came a range of policy initiatives intended to assist low-income households gain finance expressly for the purpose of obtaining a foothold on the property ladder. The uptake was naturally and predictably followed by a series of boom cycles buoyed on by investor speculation as most came to expect they’d retire with a property or two worth substantially more than it had been when first purchased.
However to afford the luxury of ownership, Australia’s household debt as a percentage of disposable income has sat stubbornly at around 150% for the past five years. For those unaware, this is the highest in the world. Back in the early 1980’s, during which home ownership levels were 70.1%, household debt to disposable income was only 50%. You can try and justify the data all you like – stressing income growth, lower borrowing costs and so forth, however it doesn’t take away the physiological impact and significant risk employed in holding such high levels of debt against residential housing – particularly in light of the GFC’s catastrophic effects both in Europe and the USA. However, from Australia’s current prospectus, a crash of similar proportions is something we’ll hopefully avoid.
So are we on our way to becoming a rental nation? Well, according to the stats, yes. Should ownership rates keep dropping at the same rate, in some 80 years’ time, 50% of Australia’s population will be living in rental accommodation – it’s hardly encouraging, is it?
An OECD report released mid last year indicated Australia is one of just five developed countries where ownership rates have fallen (along with Greece, Mexico, France and Luxembourg). However if you assess the data on a deeper level – we’re not just on a slow transition into a dominating rental market, you could equally argue we’re fast transitioning to a wandering nation of people with no fixed abode, as it seems the number of rooming houses in Melbourne alone has increased fourfold since 2006.
According to Professor Chris Chamberlain of RMIT University, there’s been a 236% increase in the number of people living in this type of accommodation since the last census. Rooming establishments are “homes” that house the most venerable – one step up from sleeping on the streets – and this data alone should wave a red flag of distress on the horizon of our sunny “lucky country” portfolio – a country with a mere 5% unemployment, loosely termed as “zero unemployment”. I should perhaps also point out that in some states, rooming and community homes are not required to meet any particular standard. Inspect a few and it soon becomes clear that comparative to Australia’s accepted standard of living, they’re “slums” for the poor.
It seems crazy that we’re in such a position considering the census data also indicates a significant rise in vacant homes – homes sitting empty, untenanted, unoccupied. It’s worth noting, the rise from 10.4% in 2006 to 10.7% in 2011 would also include homes being renovated, sold, holiday homes, and those unoccupied on the night of the census, however there would also be a large proportion sitting vacant for no good reason, either being “land banked” or standing derelict, with little incentive from government to encourage repair.
All this aside, the total number of unoccupied dwellings officially stands at 934,471 and considering they are not all one-bedroom dwellings, this is more than enough to house Australia’s homeless. I’m not suggesting we force owners to open the doors of their empty properties to all and sundry, I’m simply stressing that the rising homeless figures sit at the bottom of a long spiral that stems from years of increasing house prices and rents, which in turn has pushed a growing minority further and further away from the security owning their own home can provide.
As for current stock on market, well SQM has June’s national total up 1.7% to 386,857 – with Hobart and Melbourne showing the biggest yearly increases at 29.4% and 27.7% respectively. For any home buyer currently shopping in inner-metro localities – areas commonly referred to as the inner and middle suburban rings of our capital cities – the levels of stock mean little. This is because the buyer market is not shopping for roof space, they are searching for quality accommodation that is suitably situated for their family’s needs. In the established suburbs, property fulfilling the current needs of home owners is not thick on the ground – especially considering most are looking with a cautionary eye on personal finance.
There was a heated Twitter debate the other week surrounding RP Data’s figures for the month of June, which indicate a rise in Melbourne’s median house price by 1%. On the back of this, REIV figures have also indicated a modest rise of 2.9% in Melbourne’s median house price for the month of June. It’s worth noting, a rise in house prices of any percentage is not necessarily indicative of the health of the market. Overall turnover in Melbourne – the number of sales that keep agents working, builders building and the industry as a whole ticking along – is year to date lower than it has been for the past four years. To push the point home, from an outside perspective, you could look at the worst period of the GFC in 2008 and 2009 and herald it Melbourne’s ”good times”.
However, despite the sluggish turnover rates, a rise in the price of properties that are selling would not be inconceivable. As a snapshot example, I attended five auctions this past weekend, all of which sold under the hammer with heated competition. Furthermore, all were pushed to the top end of the advertised range. It all boils down to the one thing – the shortage of affordable stock buyers actually want to purchase. As a case in point, the auctions I attended were:
- Well positioned (inner- and middle-ring established suburbs);
- Represented the best of their type from options currently on the market; and
- Were priced appropriately for market sentiment within a $350,000 to $800,000 price range (covering most dual-income households).
This aside, for a number of reasons – some of which I’ve touched on above – we have an overall reduced number of buyers in the market. However, those actively looking feel under no pressure to settle for subpar properties while the market is predominately flat. I’ve fielded an uncommonly high number of calls from developers this week seeking assistance to shift stock in outer suburban estates. One in particular told me he’d had only one sale in three months and was now close to bankruptcy. However despite this, the irrationality of building on the fringe continues. When will governments learn to get the infrastructure planned and financed before building their “Noddy” estates. As I’ve stressed before, every home buyer and investor survey ever conducted into housing pinpoints “good access to public transport” top of the priority list.
Although “following the population” it’s not a sure-fire way to property investment success – as I’ve addressed previously. It seems sensible to assume that a large influx of residents into one state another would indicate the potential increase in demand comparative to supply – which as we’re all aware, has an upward effect on property prices.
The census shows Western Australia is the fastest-growing state, with a whopping 14.3% of people taking residence there, no doubt buoyed on by the mining boom. If you do a breakdown of population increases in the top 20 municipalities across Australia, 85% of them are in WA.
Not surprisingly, the mining towns in particular are suffering their own mini property boom with a population growth that can only be described as “spectacular”. According the census, the Shire of East Pilbara leads the way, housing 7,900 people aged between 25 and 44, 3,000 of which have moved in from other states – principally for the work and weather. Of course, when the “gold rush” ends, prices in the mining towns in particular will drop. However, historically the east and western states of Australia have always been somewhat out of sync when it comes to growth in houses.
WA in particular is coming out of a five- to seven-year period of stagnation during, which Melbourne and Sydney experienced unprecedented pre GFC growth – it would therefore not be surprising to see Melbourne and Sydney undergo their own extended flat patch as WA takes the lead in price growth. Whichever way you look at it, investors shopping in the eastern states need to be exceptionally picky with their purchases if they want to make the most of any marginal gains in the short to medium term.
Finally, the most common question I get asked is “when will the market recover?” Well, you can digest the economics – analysing GDP, interest rates, construction data, household finance, as much or as little as you like. However it’s our politicians who have the real power when it comes to dictating market movements. Policies such as restrictions on foreign ownership, negative gearing, town planning, grants, incentives, stamp duty and so forth play an increasing role in overall market sentiment and consequently how we choose to spend or save our money. At the bottom of it all is confidence – it’s the vital ingredient that reduces the feeling of risk while underpinning a sense of direction clearly defined by our leaders. Therefore, if you’re looking for a recovery – look first for an election, because until we have confidence in our politicians, we won’t gain overall confidence in the market.
Catherine Cashmore is a market analyst with extensive experience in all aspects relating to property acquisition.