Michael Bleby| Australian Financial Review| 29 September 2021
Australia’s housing price growth will slow to 7 per cent next year as macroprudential controls add to the headwinds of worsening affordability, reduced immigration and incentives and possibly even higher mortgage rates, AMP Capital chief economist Shane Oliver says.
Dr Oliver said he had already predicted a slowdown to 7 per cent – from a likely 20 per cent national gain this year – as some form of regulator-driven curbs on mortgage lending were likely.
Raising interest rates would normally be the way to curb the flood of capital going into housing, but the fragility of the national economy – despite the June quarter’s better-than-expected 0.7 per cent growth – gave the Reserve Bank of Australia little scope to rely on monetary policy, he said.
Wednesday’s announcement that the Council of Financial Regulators was making plans to bring in macroprudential measures confirmed his own forecasts, Dr Oliver said.
“It’s given me more confidence we will see a more sustained slowdown into next year,” he told The Australian Financial Review.
Affordability remains an increasingly stubborn problem in Australia.
The global 2021 Demographia Housing Affordability Survey gave Australia a median house price-to-income ratio of 7.7 times – well above the UK’s 4.8 times and US figure of 4.2 times. New Zealand – which this week introduced its own measures to improve affordability – was higher, at 10 times and Hong Kong stood at 20.7 times.
New figures from data provider CoreLogic due on Friday will give the latest update on dwelling values that had already jumped 18.4 per cent over the year to end-August. On Wednesday, CoreLogic’s figures showed an additional 1.3 per cent gain for September across the mainland capitals.
The lending curbs provided by macroprudential measures will have a shorter-term effect than a number of other factors that were already likely to bring Australia’s housing market down from a 25-year bull market, Dr Oliver said.
“Low interest rates through the last 25 years have progressively enabled people to borrow more and more, and take on more and more debt,” he said.
“If interest rates bottom out and don’t go lower, we won’t have this tailwind progressively allowing people to borrow more money and bid up prices.”
At the same time, the pandemic-triggered collapse in inward migration had coincided with a boom in new housing creation that would go some way towards easing the country’s supply-demand imbalance, he said.
Additionally, the growing acceptance of working from home was also likely to reduce the fashion that took hold in the mid-1990s of wanting to live close to the city centre, Dr Oliver said.
Over the past 20 years, average capital city dwelling prices rose 200 per cent, more than double the 82 per cent rise in wages. Over the past 10 years, dwelling prices rose 58 per cent while wages only gained 26 per cent, Dr Oliver said.