A confluence of building approvals, housing price and population figures this week are likely to all point in one direction: the failure of housing policy in key markets to keep pace with the nation’s needs.
And there’s no sign of that changing. In just three weeks, the Australian Bureau of Statistics population clock will quietly tick over the 22,500,000 mark. On Wednesday the March quarter ABS demographic release is likely to show population growth continuing to ease from last year’s peak (the one beaten up by the Coalition during the election campaign) but is still decidedly strong.
The Federal Treasury’s Red Book briefing to the new government spelt out that strong population growth was probably inescapable, but added that it “is not necessarily unsustainable … it need not adversely affect the environment, the liveability of cities, infrastructure and service delivery", so long as governments planned well.
Well there’s not much sign of that. Federal and state housing policies have demonstrably failed but there’s no meaningful change. Tax treatment is a no-go area, infrastructure investment to make the most of what we have is lagging, social housing experiments are pretty much just that, experiments, and co-ordination of the three levels of government remains a rare exception rather than a rule.
The scariest story in yesterday’s press was the Sun Herald property watch column by SQM Research managing director, Louis Christopher. He was specifically addressing the Sydney market but this has plenty of relevance elsewhere:
“SQM’s vacancy rate series also reveals a tight rental market with only some slack at the very affluent end of the market place. Vacancy rates are at 1.3 per cent and ever tighter in Sydney’s west at a dire 0.7 per cent. And from what I can see there are no significant increases in new housing developments in the next two years for the local market.
“This is scary stuff and means only one thing for rents. Our forecast is for a Sydney-wide average rise of 5-7 per cent a year for at least the next two years. The west could record an even higher growth rate of 8 per cent-plus.”
Rent rises of that order encourage renters to try to buy – but if the new stock isn’t there, it increases price pressure that attracts Reserve Bank attention. While the RBA believes we don’t have a housing bubble, it has no interest in allowing one to develop. Having railed without apparent effect about the importance of increasing housing supply, Governor Glenn Stevens is left with the unpalatable task of heading off housing inflation with his blunt instrument while facing the bigger challenge of the terms of trade wealth surge.
Some real estate markets around the nation – most notably the Gold Coast’s many empty units – may be wobbly, but the Sydney and Melbourne influence remains strong.
The day after its demographics release, the ABS will publish its August building approvals numbers. No-one’s expecting much. While there have been signs the big banks are a little more open to business, property developers generally continue to be persona non grata.
APRA continues to monitor banks’ exposure to property very closely and I’m hearing stories of the big four starting to be more ruthless in clearing out their problem loans in the sector. They’re looking to quit loans that were sharply written down over the past two years. Catch-22 is hard at work though – buyers are scarce as the banks won’t provide the credit to enable them to buy.
The whole process is delaying the increase in housing supply the nation needs to avoid affordability worsening and to gradually wean us off expectations of ever-rising residential real estate. Our spend on dwellings as a proportion of GDP has been more or less flat for the past six years – and an increasing share of the spend has been on extending existing houses, rather than building new ones.
With our population growth, that is not sustainable. The RBA has told us as much a number of times. And now the clock is ticking.
Michael Pascoe is a Business Day contributing editor. Source: www.smh.com.au