Balancing a real estate market is not an easy task. Too much supply and prices fall – too little and they rise and in this respect, years of rapid population growth has played an influence on the Australian real estate terrain.
Additionally, various incentives – negative gearing, grants for first-home buyers, reduced stamp duty rates for off-the-plan sales and new homes, relaxed FIRB requirements – to name but a few – have been introduced, changed, and intermittently withdrawn by government “movers and shakers.”
All have the effect of falsely influencing consumer demand one way or another – sometimes it’s done in favour of the investor, sometimes the home buyer, however in all circumstances any so called improvement in ‘affordability’ invariably results in price increases, of which I have no doubt was the intention in the first place.
The housing boom has fed Australia’s obsession with real estate – and I can fully understand the emotions that surround the debate. I attended a dinner over the weekend and enjoyed the company of a group of retirees who have all benefited nicely from rising property prices over our golden years of growth.
Most around the table owned a small portfolio of investments and once they discovered my current employment status, wasted no time recounting how investment in property – of which their parent’s generation had been unable or too cautious to explore – had paved the way into what was now, a relatively comfortable retirement.
When they purchased their first homes – Melbourne and Sydney were growing rapidly. Supply was good, low-rise apartment blocks were popping up along local streets; there was massive investment in infrastructure – roads, schools hospitals, public transport etc. The then ‘outer suburbs’ were far more facilitated than our current comparable ‘fringe’ localities and the higher inflationary environment benefited their footsteps into property investment nicely.
However, the question all wanted answered was – ‘are we in a bubble’ and if yes, ‘will the housing market crash?’
It’s possibly the most common question I’ve been asked to date when talking about real estate – and understandably so. Prior to the GFC, following a global ‘borrowing’ shopping spree of cheap credit, Australia’s ‘too big to fail four’ were amongst the world’s most heavily exposed to the residential real estate market, with a grand total of 59% of loans offered to this sector alone.
Mortgage debt – the largest component of all debt in Australia, has ensured Australia’s banks are as ‘pinned’ in their reliance on the ever-expanding growth of our resident population’s desire to borrow and buy, as is everyone else who has a hand in the pie – aptly benefitting those who got in at the start of the ‘lending boom’ against those who now find themselves in a far more challenging environment.
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