James Frost & John Kehoe | The Australian Financial Review | 20 May 2019
A suite of favourable policy proposals and drivers of property demand that materialised this week will not be enough to reverse falling house prices immediately but leading industry executives say a bounce is not far off.
The shock re-election of the Coalition government last weekend took Labor’s negative gearing and capital gains tax changes off the table and instead the sector awaits the Coalition’s first home buyer scheme. On Tuesday the prudential regulator loosened loan serviceability rules for banks and the following day the Reserve Bank gave its clearest signal yet it would cut interest rates in June.
It may have been a week to remember for property executives grappling with subdued demand, but Charter Hall Group chief executive David Harrison said the moves would take time to flow through to house prices.
“I think the first thing that will happen is you’ll see a [sales] volume increase,” he said.
“The pricing impact will be more of a delayed result, but ultimately you will see price growth come back.”
Mirvac chief executive Susan Lloyd-Hurwitz said the results from the bumper week of policy news had filtered through to sentiment immediately.
“We have seen a better week, our inquiry levels are up. But I think it’s very early days and I’d like to see that turn into a trend,” she said.
Ms Lloyd-Hurwitz said access to credit would be crucial for that to translate to a lift in prices. In the aftermath of the Hayne royal commission loan approvals have slowed as nervous bankers have placed heavier scrutiny on potential borrowers.
Cheaper debt, following the likely Reserve Bank interest rate cut, and less onerous lending conditions, as a consequence of the prudential regulator no longer requiring banks to test applicants against a possible future interest rate of 7 per cent, would improve access to credit, she said.
“The key here is credit. Everything else is supportive. It is credit which is the difficult thing for people to access,” Ms Lloyd-Hurwitz said.
The leading chief executives appeared on a panel of property CEOs at the Future Cities Summit in Sydney on Friday discussing how best to manage the explosive growth of cities and how this affects the quality of life of their residents.
In a bid to address congestion in Sydney and Melbourne the Coalition has proposed to lower the cap on permanent migration to 160,000 from 190,000 and require some skilled immigrants to move to regional areas.
This could reduce demand for property in larger cities, but the property chiefs brushed off the threat. Stockland CEO Mark Steinert said the cap was not materially different from the 2017-18 intake of about 160,000.
“It’s around where it’s been so I don’t think it really has a big read through in terms of the total number [of migrants],” he said. “I would say it’s pretty much business as usual.”
Ms Lloyd-Hurwitz warned that falling property prices had caused construction to slow, which would bring about serious supply challenges in about 18 months that would need to be managed.
“I think the important thing is we definitely need to increase supply. Under our calculations with a very dramatic fall off in approvals and starts we’re going to be in undersupply in the next 18 months.”
New housing approvals dropped to a five year low over March, according to the latest data from the Australian Bureau of Statistics. The rolling yearly total of approvals fell into sub 200,000 territory, for the first time since May 2014.
Ms Lloyd-Hurwitz thought bringing supply back on to the market had to be done in a measured way so prices did not surge again and lock buyers out of the market. “What we don’t want is a return to the excessively frothy conditions that we had over the previous three to four years. It needs to be a much more measured, affordable, steady market that doesn’t have the volatility that we’ve seen over the last three years.”
JLL Australia and New Zealand chief executive Stephen Conry said the Coalition’s win had already sparked “evidence of more buyers looking and inquiring and potentially buying”.
From here he said the best thing the Coalition government could do to support the housing market was to focus on economic growth. “All else comes from a strong economy, if you haven’t got a strong economy, you can’t afford to do anything.”
Mr Conry hoped the Coalition would appoint a housing minister, a portfolio that hasn’t existed since Tanya Plibersek was housing minister under the Rudd Labor government in 2007-2010.
The establishment of a housing portfolio has been the subject of significant lobbying from the property sector for well over five years.