An update from Managing Director Daryl Borden - as seen in the Dingley Dossier
12 months ago there were multiple media reports of an impending property crash to occur 2016. Some of those stories are now being re-run. The affordability crisis, too many apartments, economic concerns – has an inevitable crash been delayed or is it a media beat up? Here I list some of the primary issues, along with predictions.
1. Economic concerns
While Australia has managed the end of the mining boom extraordinarily well, we are still at the mercy of the world economy. Brexit and Trump were two major surprises in 2016, the full ramifications of those events will not be known for many years. China and Europe events could be next. A world economic crisis could cause rates to increase, or decrease. Somewhat paradoxically, a world recession could decrease Australian interest rates, increasing housing prices. An outbreak of world inflation would conversely lead to increased rates.
Demand for housing continues to grow. It should not surprise that the greatest pressure on housing prices is in the areas of higher population growth, particularly Melbourne and Sydney. Many communities reliant on mining related employment (including Perth) have suffered dramatic house price falls due to changes in that industry. The major eastern seaboard cities continue to provide the majority of employment opportunities and therefore continue to grow. That situation is likely to continue.
There have been unprecedented numbers of apartments being built. Is that a problem? The fact is there is more demand for apartments now than there has ever been. That style of living is attractive to many, and demand for it continues to increase. There will be oversupply in some areas, that will decrease apartment prices in those areas; it will not cause a crash in general property prices. Governments understand the increased need and demand for medium density living, and are comfortable the advantages of that outweigh the disadvantages.
Affordability is changing behaviour. Purchasing on the edge of Melbourne to attain affordability 30 years ago was 20km from the CBD, now that can be 50km. Demand closer to the CBD continues to drive all markets. Increasing demand for apartments is not only for lifestyle, it also driven by affordability. While affordability can be expected to limit housing price increases, it also supports the market, with many prospective buyers ready to step in to take advantage of price decreases.
Housing prices are not going to crash unless there is a major change to existing fundamentals such as increasing unemployment or increasing interest rates. Unique, quality properties which are located in prime areas will continue to perform over the long term. Cheap properties in out-of-favour areas will suffer most when the inevitable cyclical economic downturn arrives. Price growth in Melbourne and Sydney slowed in 2016 to a sustainable level, my expectation is to see nominal growth again in 2017 in these major markets.