Category: Property Market

The Great Rotation – The Property Imperative Weekly 3rd June

The great rotation is well underway as investors vote with their feet whilst first time buyers are getting greater incentives to buy into the market at its peak. Welcome to the Property Imperative Weekly for 3rd June 2017.

In this weeks review we look at changes to mortgage interest rates, new first time buyer incentives and new findings from our core market model, freshly updated to end of May.

We saw a litany of rate hikes during the week, and other changes to lending conditions. On Monday NAB reduced the maximum LVR for interest only loans from 95% to 80% for both owner occupied and investor purchasers.  They also reduced the LVR for construction loans to 90%.

On Tuesday, AMP bank lifted its variable interest rate for owner occupied loans by 28 basis points and the bank also hiked fixed rates for owner-occupied and investment interest-only loans by 20 basis points. They dropped the maximum loan-to-value ratio for interest-only loans from 90 per cent to 80 per cent. On the other hand, fixed rates for owner-occupied principal and interest loans have decreased by 10 basis points.

On the same day Westpac reduced the LVR for new and existing interest only loans to 80%, across the board including both owner occupied and investment loans. They also said they would no longer accept new standalone refinance applications from external providers. But they waived the switching fees for borrowers who wanted to shift from interest only to principal and interest loans.

On Wednesday NAB offered new white label principal and interest mortgages through its Advantedge wholesale funder, with a maximum LVR of 80%, including at 4.24% loans to residential investors.

On Thursday, Teachers Mutual brought out a new hybrid combination mortgage, which limits the amount of the loan which can be interest only.  They also increased the interest only loan rate by 40 basis points.

And on Friday, Bank West, the CBA subsidiary announced a new LVR band at 95% plus, with a mortgage rate of 5.29%, up by three quarters of a percent. Other lending will be capped at 95% LVR.

So mortgage rates continue to rise, especially for interest only loans, and investors; and underwriting standards continue to tighten.  Many households will see their repayments rise, again, despite no change in the RBA cash rate, so adding to their financial stress.

This week we got the April lending data from the RBA and APRA. The Reserve Bank said housing lending rose 0.5% in the month, or 6.5% over the past year to $1.66 trillion dollars. Within this, owner occupied loans rose 0.55% whilst investment loans grew 0.36%, and another $1.1 billion were reclassified by the banks, making a total of $52 billion which is nearly 10% of the investment loan book. This ongoing switching should be concerning the regulators because it means that either the bank data is just wrong, or borrowers are deciding to switch an investment loan to an owner occupied loan to get a lower rate, but we wonder what checks are being done when this occurs.

The proportion of lending to productive business fell again, so housing lending is still dominating the scene to the detriment of the broader economy and sustainable long term growth.

APRA showed that the banks lifted their investor loans by $2.1 billion in April though all the majors are well below the 10% speed limit. The quarterly property exposures showed a fall in higher LVR lending, but interest only loans still well above the 30% threshold APRA set. But weirdly APRA warned that we should not use these statistics to access the impact of their latest moves, because the reported data is based on approved loans, whereas their measure is on funded loans. So plenty of wriggle room and more fog around the data.

Talking of wriggling, Wayne Byres gave evidence to the Senate Economics Legislation Committee and under sustained questioning said alarm bells were ringing on home prices and that we had entered a high risk phase.  It is worth watching the video of the session, which is linked on the DFA Blog.  The regulators continue to be coy about the issue, which by the way is confronting many other countries too. The truth is the financialisation of property is the root cause of the property bubbles around the world, and it will be very hard to tame. Australia is not the only country with a bubble.

Amid all this mayhem, and with bank stocks under pressure relative to the rest of the market, New South Wales released their housing affordability plan. NSW has perpetuated the “quick fix” approach to housing affordability, alongside taxing foreign investors harder and making changes to planning. The removal of stamp duty concessions to property investors may slow that sector, but the fundamental issue is that supply is not the problem many claim it to be.

First time buyers are potentially able to get up to $34,360, but we think this will just push prices higher. The new arrangements start 1 July, so we expect a slow June. With the enhanced incentives in Victoria and Queensland also coming on stream, we are expecting a pick-up in first time buyer demand as investor appetite slows. Our latest surveys show this rotating trend, and we will publish the detailed finding over the next few days. But already we see some investors are selling, to lock in capital growth, and some first time buyers have renewed their search to buy, on the back of the new incentives, and greater supply.

Meantime there was further evidence that property prices are indeed drifting lower . According to CoreLogic’s Home Value Index they fell in Sydney and Melbourne over the month of May, by 1.3% and 1.7% respectively.  It is becoming increasingly clear the momentum is easing, so it now is a question of how far it eases down, and whether prices go sideways, or fall significantly.

We expect mortgage rates to continue to rise. ANZ said their new APRA risk weight for mortgages was now 28.5%, which was at the top end of expectations.  But whilst this is higher than the sub-20 lows, it is still significantly lower than the regional banks capital weights, and even allowing for the bank tax, they remain at a capital disadvantage.  We think APRA will lift capital weights further down the track, and when we take account of expected US rate rises also, mortgage rates will continue to climb. This feeds into, and reinforces the potential slide in prices. Whilst first time buyers may take up some of the slack, we think the market dynamic is morphing into something rather ugly.

And that’s the latest Property Imperative Weekly. Check back next week for the latest installment.

Tales Of The Pilbara Property Bust

The West Australian featured a story of two brothers who rode the wave of the Pilbara property boom to become multimillionaires but who are now facing a potential financial headache, with a bank foreclosing on part of their property portfolio after they allegedly failed to pay their mortgages.

At the height of the Pilbara property peak in 2012, rental prices in Port Hedland were nearing $2600 a week on average, while the median house price was upwards of $1.2 million, according to Pilbara Development Commission figures.

Property prices in Karratha and Port Hedland have fallen dramatically over the past five years, with Landgate records showing the Crawfords have sold property for hundreds of thousands of dollars less than the buying price.

Ryan and Morgan Crawford claimed to have made millions of dollars from investments in Pilbara towns when property and rent prices reached astronomical levels during the mining boom.

But in a spectacular example of the Pilbara property crash, part of the Crawford property empire has been sold for a fraction of the buying price, according to Landgate records, with documents filed in the Supreme Court last week revealing the proceeds fell well short of what was owed.

The ANZ Bank wants to repossess one property owned by Ryan Crawford, and has demanded the balance of the outstanding debt, plus interest and costs.

In total, the brothers and former colleague Mark Pages-Oliver borrowed more than $5.5 million from ANZ in four years.

Ryan Crawford, who described himself on social media as “an active entrepreneur” who rose “to the rank’s of the State’s 1 per cent” of personal property investors, at one time claimed to have a portfolio valued at $35 million.

 

Australia isn’t the only country caught in a housing bubble

Property bubbles have been created by a combination of ultra-low interest rates, easy lending, rapid population growth, and an openness to foreign investment. Underlying it all is the financialisation of property.

From The NewDaily.

It’s only natural for Australians to be obsessed with our own property market woes, but there is a whole world of bubbles out there waiting to be popped.

We chatter endlessly about prices in Sydney and Melbourne, which is unfair to the other capital cities. But it’s understandable, as 57 per cent of the nation lives in Victoria and New South Wales, according to Australia’s statistics bureau.

And we’re right to be concerned. Only this week, Citigroup chief economist Willem Buiter said Australia is in the midst of a “spectacular housing bubble”. He joined a great host of experts worried that our two main property markets have been running way too hot.

The numbers back him up. CoreLogic, one of our most widely cited property pricers, says Australian houses now cost 7.2 times the yearly income of a household, up from 4.2 times income 15 years ago.

Between the global financial crisis and February 2017, median dwelling prices almost doubled (+99.4 per cent) in Sydney, bringing them to $850,000, and in Melbourne (+85 per cent to $640,000), according to CoreLogic.

But we should not delude ourselves that a housing crisis is a uniquely Australian phenomenon. Cries of “Bubble!” are ringing out across the globe.

Sweden’s central bank boss Stefan Ingves this week issued a warning about sky-rocketing household debt and soaring property prices. Sound familiar?

In Switzerland, the cities of Zurich, Zug, Lucerne, Basel, Lausanne and Lugano face similar risks.

Then there’s Ottawa, Vancouver and Toronto in Canada – an economy comparable in size and composition to our own. As it has for Australia, the International Monetary Fund has told the Canadian government to intervene or risk an economic crash.

The International Monetary Fund (IMF) has issued similar warnings for Denmark, which is battling soaring prices in the capital of Copenhagen.

Most important of all is China. Prices rose 22.1 per cent in Beijing, 21.1 per cent in Shanghai and 13.5 per cent in Shenzen between March 2016 and March 2017, CNBC reported.

The warnings are familiar. “If young people lose hope, the economy will suffer, as housing is a necessity,” Renmin University president Wu Xiaoqiu said recently.

The difference is, if the Chinese economy crashes because of a housing market correction, it will echo throughout the world.

Hong Kong is fighting bubbles, too. Reports on its property market are full of “handsome gains” and an impending “burst“.

Closer to home is Auckland in New Zealand, where prices have also doubled since the GFC.

Despite Brexit, the mother country is hurting, too. There are periodic predictions that London will “finally burst” after years of rampant price growth.

So what’s going on? The consensus is that these bubbles have been created by a combination of ultra-low interest rates, easy lending, rapid population growth, and an openness to foreign investment.

Saul Eslake, a renowned Australian economist, told The New Daily there are “common factors” across these affected nations, including immigration. But he cautioned against shutting the borders.

“It’s wrong, it’s factually incorrect to deny that immigration has contributed to rising house prices. It has contributed to it. But I would argue that to respond to it by, as Tony Abbott among others has advocated, cutting immigration would be the wrong approach.”

Dr Ashton De Silva, a property market expert at RMIT University, also blamed demographic change across the globe.

However, Dr De Silva said each country’s unique factors should not be ignored.

“The fact that it’s happening the world over is important to note because there are many countries going through a very similar cycle, such as China,” he said.

“However, whilst we can take this overarching view, we need to be mindful that there is a very important local story going on. And that story is not always consistent.”

If Australia wants to beat its bubble, perhaps it should look to Singapore.

It was fighting rampant prices too until the government intervened and did two things: boosted supply by building a whole bunch of new apartment buildings, and dampened demand by hiking stamp duty and cracking down on foreign buyers.

NSW first home buyer demand set to surge post July 1

From CoreLogic.

Abolishing stamp duty for first home buyers is likely to create some headaches for eligible buyers who have recently entered into contracts. Additionally we can expect first home buyer activity to stall before surging higher on July 1 2017. The long term outcome may be self-defeating due to higher demand pushing up prices.

The decision yesterday by the News South Wales Government Premier Gladys Berejiklian to provide first home buyers with a stamp duty exemption for properties with a price tag under $650,000 is likely to boost demand for this under represented segment of the market. Based on recent Australian Bureau of Statistics (ABS) data, first home buyers comprised only 8% of owner occupier mortgage commitments in March 2017, which is only marginally higher than the record low of 7.5% recorded in September last year and well below the long term average of 17%.

According to the latest CoreLogic ‘Perceptions of Housing Affordability’ report, it highlighted that across New South Wales the largest proportion of respondents (48%) identified that stamp duty was the most significant obstacle to housing affordability. Additionally, almost three quarters of respondents (74%) felt that removing or reducing stamp duty would be an effective way to improve housing affordability in New South Wales.

Clearly the state government is responding to one of the most significant pain points for prospective buyers.

The current policy provides a stamp duty exemption to first home buyers purchasing a new home with a price tag under $550,000. The new policy has substantially broader scope, providing an exemption for both new and established housing with a price tag under $650,000 and sliding discounts up to $800,000.

To put these limits into context, over the past twelve months, 45.4% of dwellings sold across New South Wales had a price tag of $650,000 or less and 58% of dwelling sales had a price tag $800,000 or less. The proportion of properties that meet the exemption criteria falls away sharply if the analysis is confined only to the Sydney metropolitan area where 25.8% of dwelling sales over the past twelve months were at a price of $650,000 or less.

With a substantial premium on detached housing, the proportions are also substantially different between the broad product types. The past twelve months saw 20.0% of Sydney houses sell for $650,000 or less while unit sales comprised just over one third of all sales (33.5%) at or below this price.

Additionally, with investor demand likely to be slowing due to higher mortgage rates, tighter credit policies and low yields; there is the potential that a rise in first time buyer demand could fill the ‘hole’ left by fewer investors in the market and offset the recent slowdown in the pace of capital gains.

First home buyers still need to contend with the challenges of raising a deposit, which is another major barrier to market entry. Housing prices in Sydney are the highest amongst the capital cities, with the latest data from CoreLogic putting the median house price at just over $1 million and median unit price at just under $743,000. Those buyers who can’t stump up a 20% deposit have been given another leg up, with stamp duty for lenders mortgage insurance also abolished.

Stamp duty on lenders mortgage insurance is charged at 9% of the premium; so a first home buyer with a 5% deposit on a $650,000 property is likely to save themselves around $2,250 (based on a premium of $25,000).

Removing or reducing the transactional costs for first home buyers is likely to provide both positive and negative consequences across the New South Wales housing market.

From a positive sense, policies aimed at improving housing accessibility for first time home buyers are likely to be positively received. Sydney is Australia’s most unaffordable housing market by any measure, and for many buyers, the cost of entry, including stamp duty and raising a deposit, is the most significant barrier to entry. On a $650,000 dwelling purchase, a non-first home buyer would be paying stamp duty costs of around $25,000; so the exemption is a substantial cost saving for a first home buyer.

On the negative side, it’s widely accepted that policies aimed at stimulating demand tend to push prices higher; there is a possibility that the new policy could ultimately be self-defeating, increasing housing demand which could place further upwards pressure on the price of housing which will exacerbate the affordability challenges even further.

The new policy comes into effect on July 1st, so we can expect first home buyer sales to stall over the remainder of June and likely surge higher from the beginning of the new financial year. For those buyers who are potentially eligible for the new exemptions but have recently entered into contacts, there is likely to be some severe disappointment that these rules aren’t applied retrospectively.

Perfect storm for housing affordability

From Mortgage Professional Australia.

First home buyers’ day of reckoning as Sydney and Melbourne prices drop and stamp duty is slashed

Property prices fell in Sydney and Melbourne over the month of March, by 1.3% and 1.7% respectively, according to CoreLogic’s Home Value Index.

Published yesterday, the Index coincided with an announcement by NSW’s State Government that stamp duty was to be abolished for first home buyers on existing and new properties under $650,000. Discounts on stamp duty will be available on properties up to $800,000.

“I want to ensure that owning a home is not out of reach for people in NSW,” explained NSW premier Gladys Berejiklian “These measures focus on supporting first homebuyers with new and better-targeted grants and concessions, turbocharging housing supply to put downward pressure on prices and delivering more infrastructure to support the faster construction of new homes.”

The state government will commit $3bn of funding for infrastructure and abolish stamp duty charged on lender mortgage insurance for FHBs. Conversely, stamp duty concessions have been removed for investors buying off the plan and the stamp duty charged on foreign investors will double to 8%.

Improving landscape for FHBs across Australia

Prospects are finally improving for first home buyers on the eastern seaboard. Both NSW and Victoria now have stamp duty exemptions for first home buyers and cooling housing markets, with property prices not moving in Sydney and increasing by just 0.7% in Melbourne over the past quarter.

CoreLogic’s data also revealed that prices in Perth and Darwin continue to fall, with sudden reversals in Hobart and Canberra and only moderate growth in other cities.

However Corelogic head of research Tim Lawless warned that price falls may not continue: “The May home value results should be viewed in the context of demonstrated seasonality; values have fallen during May in four of the past five years. Reading through the seasonality indicates that value growth in the market has lost momentum, particularly in Sydney and Melbourne where affordability constraints are more evident and investors have comprised a larger proportion of housing demand.”

Further action by APRA could reduce demand, according to Lawless: “considering we are yet to see the full effect of the recent round of macroprudential measures flow through, there is a high possibility that investor activity, and consequently housing demand, will slow further during 2017.”

Are stamp duty concessions the right way forward?

Former RBA governor Glenn Stevens, who advised the NSW government, has stated he’s not a ‘big fan’ of measures such as grants and concessions as these can simply drive up prices.     He argued that “the government might expect to achieve much more for affordability in the longer run by spending this money in other ways that would lead to lower cost supply of new housing.”

Labor has pledged to scrap negative gearing, although Treasurer Scott Morrison has claimed removing it could actually harm affordability by raising rents.

The UK government has turned against negative gearing for investors, with tax relief being phased out by 2021. This has had a huge effect on prices in London, which grew by 1.5% in the year to March compared with 15% growth the year before.

DomaCom test case: super-for-housing is back on the agenda

From The NewDaily.

Listed investment group DomaCom Ltd is suing the tax man to allow self-managed super fund investors to buy into properties they live in – a test case with potentially huge implications for superannuation and housing affordability.

DomaCom’s ambitions were stymied last October when the Australian Taxation Office said the company’s plans did not pass the ‘single purpose test’ for superannuation.

DomaCom uses trust structures to allow SMSF investors to buy a percentage of a property that they or their families live in. The ATO considered this creative use of trust structures to essentially allow people to gain a benefit by living in their property while holding it as a superannuation investment.

But DomaCom didn’t take that decision lying down. It moved to start an internal dispute process with the ATO. That process proved inconclusive, so now the company is asking the Federal Court to rule on the situation.

It would like the court to say that DomaCom’s structures are not in-house or related trusts for the purposes of superannuation.

To bring the case, DomaCom is financing a civil action taken by one of its clients, who has invested in an apartment built for student accommodation and would like his daughter to rent it while she completes her studies.

DomaCom CEO Arthur Naoumidis told The New Daily, “if we get the ruling in our favour then we would argue we have a precedent and we could follow it”.

However, were the courts to find in DomaCom’s favour, regulators are likely to be concerned on two counts. The purpose of superannuation could be undermined by allowing SMSF owners and their families to live in properties part-owned by their private super funds.

There would also be concern that housing affordability could be further damaged by SMSFs pouring money into residential property.

Even if that idea holds water legally, the ATO and Treasury would be unlikely to let it lie.

Helen Hodgson, associate law professor at Curtin University, told The New Daily last year that “if it was found to be technically possible I imagine fairly soon we would find someone saying the loophole should be closed”.

DomaCom is a listed investment company with lots of units and investments. But unlike other investment companies it allows people to choose a property they want to buy into and purchase through a dedicated sub-fund.

When a property is found by would-be buyers, DomaCom organises a book build where would-be investors promise to buy units at a certain price. If enough money is raised the sub-fund buys the property, essentially through crowd funding.

DomaCom has claimed it is not restricted by the sole purpose test because it ensures when people buy into a sub-fund they are legally buying into a small part of the overall DomaCom structure, rather than buying a single asset.

What DomaCom believes is that if an SMSF buys a stake in, or all of, a sub-fund, its owners can legally live in the building or rent it to their children because the SMSF would receive income from the overall revenues of the fund, not rent paid.

It would also allow children to build stakes in properties their parents bought in an SMSF through purchasing units in the sub-fund over time using their super contributions.

“The ability to use superannuation to help people into a home is clearly a topical issue in Australia and it is our belief that the DomaCom Fund can play a key role in solving this issue whilst still protecting the assets of the SMS,” Mr Naoumidis said.

NSW Government Reveals Housing Affordability Plan

So NSW has perpetuated the “quick fix” approach to housing affordability, alongside taxing foreign investors harder and changes to planning. The removal of stamp duty concessions to property investors may slow that sector, but the fundamental issue is that supply is not the problem many claim it to be.

Lets see if first time buyer property values rise by the amount of the increased incentives, as has happened elsewhere.

Premier Gladys Berejiklian, Treasurer Dominic Perrottet and Minister for Planning and Housing Anthony Roberts announced the far reaching changes on which could save first homebuyers up to $34,360. The package includes:

  • Abolishing all stamp duty for first homebuyers on existing and new homes up to $650,000 and stamp duty discounts up to $800,000. These changes, to be introduced on 1 July 2017, will provide savings of up to $24,740 for first homebuyers
  • Abolishing the stamp duty charged on lenders’ mortgage insurance, which is often required by banks to lend to first homebuyers with limited deposits, providing a saving of around $2,900 on an $800,000 property
  • Doubling the foreign investor surcharge from 4% to 8% on stamp duty and 0.75% to 2% on land tax
  • Removing stamp duty concessions for investors purchasing off the plan
  • Committing $3bn in infrastructure funding from Government, councils and developers to accelerate the delivery of new housing
  • Fast-track approvals for well-designed terraces, townhouses, manor homes and dual occupancy by expanding complying development to include these dwelling types
  • Greater use of independent panels for Councils in Sydney and in some regional areas to ensure development applications are done efficiently and to ensure the integrity of the planning process
  • Measures to maintain the local character of communities

“I want to ensure that owning a home is not out of reach for people in NSW,” Berejiklian said.

“These measures focus on supporting first homebuyers with new and better targeted grants and concessions, turbocharging housing supply to put downward pressure on prices and delivering more infrastructure to support the faster construction of new homes.

“This is a complex challenge and there is no single or overnight solution. I am confident these measures will make a difference and allow us to meet the housing challenge for our growing State.”

Former Reserve Bank of Australia Governor Glenn Stevens advised the NSW Government in developing its housing affordability package. His report to Government was also released on Thursday.

“I would like to thank Mr Stevens for his valuable advice and insights during the development of this package,” Berejiklian said. “In particular, his advice about avoiding any unintended consequences on the market was greatly appreciated.”

Perrottet said the Government would take advantage of its strong Budget position to give a leg up to prospective first homebuyers while also investing more into targeted infrastructure to support housing growth throughout Sydney and parts of regional NSW.

“As a Government, we have always focused on supporting first homebuyers and this package takes it to the next level,” Perrottet said.

“We know how challenging it can be to enter the property market and are pleased to be providing even more financial support for people wanting to make their first purchase.”

Roberts said the package included measures to speed up planning processes to ensure developments get off the ground as quickly as possible.

“While we have done well to release an unprecedented amount of land over the last six years, we need to do better with our development application process to ensure we are keeping up with demand,” Roberts said.

“That is why we are simplifying complying development rules for greenfield areas and establishing specialist teams to help speed up the rezoning process for residential development, while maintaining the local character of communities.”

As reported in Australian Broker.

The housing market is swinging to over-supply

From The NewDaily.

First time home-buyers may have been relieved on Wednesday to see home prices falling by an average 1 per cent across the nation, according to the latest data from CoreLogic.

‘May’ is the operative word. In a nation full of property experts, even relatively inexperienced house hunters know that figure could bounce back next month.

The figures for bubble-cities Sydney and Melbourne were heartening for non-home-owners, falling 1.3 and 1.7 per cent respectively – the biggest monthly slide since November 2015.

What makes these figure different to the falls seen 18 months ago, however, is the context in which they are happening.

In its simplest form, the market is swinging towards over-supply in a very short space of time – something that will surprise buyers who’ve been told for years that the problem was ‘under-supply’ .

The ‘over-demand’ problem

The government, and every real estate agent or property spruiker worth their salt, has been using the myth of ‘under-supply’ to explain the sky-high prices that are locking a generation buyers out of the market.

High profile real estate agent John McGrath wrote on Tuesday in the Switzer Daily investment newsletter that: “We have too much population growth fuelling demand and too much of an undersupply to experience a crash.”

Well it’s not quite that simple. As covered earlier this week, the immigration intake is going to become a hot-potato at the next election, so may not be as reliable a back-stop as in recent years.

And the ‘under-supply’ problem is mostly a myth anyway.

As University of Sydney town planning academics Peter Phibbs and Nicole Gurran explained recently, ‘under-supply’ is the government’s way of explaining rock-bottom housing affordability, without having to do much about it.

A far more accurate term to use is ‘over-demand’, which is created by the large tax refunds the government has been handing back to property investors since changes to capital gains tax laws in 1999.

The much under-reported figure that proves that point is the number of Australian residents per dwelling, measured by the Bureau of Statistics, which has remained virtually unchanged right through the housing boom years.

There is no great mis-match between the number of dwellings available to be lived in, and the number of people wishing to rent or buy them.

The ‘under-supply’ simply reflects too few dwellings on the market to cater for investors who wish to enjoy large tax refunds through negative gearing, as well as the apparently fool-proof capital gains that benefit from the 50 per cent capital gains tax discount.

When these dynamics are understood, falling house prices in the bubble cities have to be the result of one of two things: investors deserting the market, or a larger volume of properties coming onto the market.

Well investors are still not deserting the market according to the Reserve Bank’s latest credit data. It shows the value of investor loans growing by 7.3 per cent year-on-year, which is still higher than the growth in owner-occupier loans, at 6.1 per cent.

So if investor demand for credit is continuing apace, and if the usual numbers of young first-home-buyers are out looking for a home, how can prices be falling?

The answer is on the supply side. The much discussed ‘apartment glut’ is beginning to work through the system, with knock-on effects in the detached housing market.

As Mr McGrath himself notes: “CoreLogic figures tell us that the supply of established housing stock available for sale in Sydney and Melbourne is at its highest level for this time of year since 2012.”

Meanwhile, foreign buyers – mostly from China – many of whom are not captured by the RBA credit data, are pulling out of the market. That leaves even greater supply for local investors to pick over.

In those circumstances, prices can fall despite ‘strong investor demand’.

What we are seeing is not a shift from a large under-supply back to more normal levels of supply, but a shift from normal-ish levels of supply to over-supply – with slightly lower levels of investor demand due to the China exodus.

That will leave Treasurer Scott Morrison with some explaining to do at the next election, when he will presumably continue to promise to ‘unlock supply’ and solve the affordability problem.

In fact, it’s looking pretty unlocked already.

Sydneysiders blame foreign investors for high housing prices

From The Conversation.

Sydneysiders are concerned that foreign investors, and particularly Chinese real estate investors, are pushing up housing prices, according to survey findings published this month. A majority believed foreign investors should not be allowed to buy residential real estate in Sydney.

The federal budget was the government’s latest attempt at navigating a policy solution that supports its pro-foreign investment position while responding to public concern about housing affordability in Australian cities.

China’s government is also searching for a policy solution to restrict the large amount of capital that’s flowing out of the country. But the Chinese crackdown “doesn’t appear to be working”.

We surveyed almost 900 Sydneysiders to investigate their views on foreign real estate investment. The effectiveness of government regulations on foreign investment and investors was a major concern for respondents.

Views on government regulations

The survey obtained the views of people aged over 18 living in the Greater Sydney region. They were asked about housing affordability, foreign investment, the drivers of Sydney housing prices, and perceptions of Chinese investors specifically.

Support for the government’s regulation of foreign investment in housing was weak. Only 17% of respondents thought it was effective.

Almost 56% of participants believed foreign investors should not be allowed to buy residential real estate in Sydney. Only 18% believed this should be permitted.

More than 63% of participants disagreed that the “government should encourage more foreign investment in greater Sydney’s housing market”. Only 12% of participants agreed with this.

These views stand in stark contrast to the government’s geopolitical support for foreign investment in Australia.

Views on foreign investors

There is little fine-grained data about the impacts of foreign capital and investors on specific neighbourhoods and developments in Australian cities. Therefore, we did not set out to compare public attitudes against the limited empirical evidence on the effects of foreign real estate investment in Sydney.

What’s significant about the survey results is that Sydneysiders have strong views on foreign investment, despite the absence of reliable evidence. Participants’ concerns about foreign investors and investment were consistent with their concerns about the government’s foreign investment rules.

Around 63% of Sydneysiders identified the Chinese as the heavyweights of foreign investment. This is likely to be accurate, given the concentration of Chinese investment in Sydney and Melbourne.

When presented with the statement “I welcome Chinese foreign investors buying properties in my suburb”, more than 48% of participants disagreed.

Other studies, however, have shown the potential for public confusion between domestic Australian-Chinese and international Chinese buyers.

Views on the drivers of housing prices

Respondents were asked to choose up to three drivers of house prices based on their understanding of Sydney’s housing market. By far the most commonly nominated driver of house prices (64% of respondents) was foreign investors buying housing.

Roughly one in three survey participants saw low interest rates (37% of respondents) and domestic home owners (32%) and investors (32%) as the drivers of higher housing prices. Local housing analysts generally agree with this.

But more than three in four participants (78%) agreed with the statement:

Foreign investment is driving up housing prices in greater Sydney.

When framed inversely, as “Foreign investment has no impact or very small impact on greater Sydney’s housing market”, more than two-thirds of participants (68%) disagreed with the statement.

Only 6% of our participants disagreed that foreign investment was increasing real estate prices. Around 11% agreed that foreign investment had no or minimal impact.

Views on housing supply and affordability

We expected people to report that foreign people and capital are driving up housing prices and making it more difficult for Australians to compete in the housing market. But we were surprised by the findings about Sydneysiders’ views on foreign capital and housing supply.

A strong message from the real estate and property development industries is that foreign investment increases housing supply, which in turn puts downward pressure on prices.

Politicians and lobby groups argue this will help improve housing affordability in major Australian cities. But many housing analysts argue that this supply solution does not stack up for purchases made by either foreign or domestic investors.
It seems that Sydneysiders don’t accept the real estate industry message about foreign investors increasing housing supply, and therefore helping to ease housing affordability pressures.

When asked if “Foreign investment can help increase housing supply in greater Sydney”, 48% of participants disagreed with the statement. Another 25% “neither disagreed or agreed”.

An unresolved policy dilemma

The government’s dilemma is how to manage foreign investment alongside an increasing housing affordability problem in major Australian cities.

This month’s federal budget included a crackdown on foreign investors, but the government still supports foreign real estate investment.

Our survey results support other studies that suggest this pro-foreign investment stance must be accompanied by strategies to protect intercultural community relations. This must happen alongside efforts to improve housing affordability.

Authors: Dallas Rogers, Senior Lecturer, Faculty of Architecture, Design and Planning, University of Sydney; Alexandra Wong, Engaged Research Fellow, Institute for Culture and Society, Western Sydney University; Jacqueline Nelson, Chancellor’s Postdoctoral Research Fellow, University of Technology Sydney

Here’s where housing construction is booming in Australia

From Business Insider and HIA.

Australia has been on an epic residential building boom in recent years, constructing more homes than ever before in the 2015/16 financial year.

And nowhere has this been more evident than in the locations listed below.

Courtesy of Australia’s Housing Industry Association (HIA), it shows Australia’s top 20 residential building “hotspots” for the 2015/16 financial year.

Here’s the list released in a report from the group over the weekend.

Source: HIA

The HIA deems a “hotspot” to be a region where population grew above the 1.4% national average and where at least $150 million worth of residential building was approved during the year.

Perhaps unsurprisingly, the group found that nine of the top 20 Hotspots were in New South Wales, with a further four and three located in Victoria and Queensland resectively.

And many of those were in inner-city regions, courtesy of an unprecedented level of apartment construction in these locations.

Pimpama, sandwiched between the Gold Coast and Brisbane in Southeast Queensland, was deemed to be the hottest of the hotspots in the 2015/16 financial year, logging population growth of 35.1% with $340.2 million worth of dwellings approved.

Cobitty-Leppington in Sydney’s Southwestern fringe, along with Palmerston in Darwin, took out second and third spots respectively.

Inner-city locations such as Docklands and Southbank in Melbourne, and Waterloo-Beaconsfield in Sydney, also made the top ten list.

While residential building activity across the broader Australian economy looks set to slow in the years ahead — building approvals have been trending lower, particularly for apartments, while the value of residential construction work done in the March quarter of this year fell — the HIA is forecasting that the decline will be modest, leaving total residential construction at elevated levels.

“Even though new dwelling starts will decline over the next couple of years, the annual volume of new home starts is not likely to fall below 173,000 at any stage,” the group said in early March this year.

“By any standard, this is still a very robust level of activity.”

Source: HIA