Property prices increased by 2% in February and in March some capital cities recorded growth as high as 4%. That’s 50% per annum. We’ve seen this before – property prices doubled between 1986 and 1989, then again between 1998 and 2003. The Brisbane median house price increase by 66% between 2002 and 2004 when it last had an explosion in net interstate migration. As I’ve said in our Sunplace webinars in the past six months, ‘you will be shocked at how quickly house prices go up’.
The serial procrastinators need to see it happen before they commit and that will be an expensive lesson for them. This boom is underpinned by numbers we have never experienced before. You know the interest rate story and I’ve banged on about how much extra/spare money is floating around the world economy, never seen before stimulus for first home buyers, and how retirees and investors around the world are desperate for cashflow returns.
The real number missing in the equation is the shortage of supply. This is a more interesting story because it is the massive hangover from the royal commission during which investors and developers were hamstrung by APRA and bank lending policies.
The Reserve Bank of Australia came out last month and said it was not concerned about house prices. Its priority is employment and wage growth.
APRA came out just this week, saying “it’s not our job to solve house prices and it’s not our job to solve house pricing affordability.” It went on to say “we are watching for a deterioration in lending standings, and that’s not evident at this point. That is not to say it won’t emerge, but it’s not obvious at this point.”
A healthy supply of housing commencements is 200,000 to 220,000 per year. Of that, we would typically see 120,000 houses built (the remainder units and townhouses).
However, COVID-19 caused a surge in demand for residential housing. That number could easily have increased to 150,000 today.
In the past 12 months Australia has built just 100,000 houses – well below the required amount and the lowest number since 2013!