By Charles Tarbey

We have recently seen APRA, the Reserve Bank and Australian politicians continue to discuss concerns about the housing market.

Following the Reserve Bank’s April monetary policy decision to hold rates steady, Governor Philip Lowe emphasised the need for strong lending standards in order to manage the increasing risk of growth in household borrowing outpacing growth in household income. At the same time, many major banks have independently increased their interest rates.

My concern is how any legislative changes or independent movements in interest rates will play out in Australia with such disparate real estate market conditions from state to state, and even from one suburb to the next. What may be good for one market might not be good for the next, so regulators and politicians have their work cut out for them in both managing economic risks while also ensuring that the decisions they make are in the best interests of as many Australians, and markets, as possible.

While some markets on the eastern seaboard could benefit from new lending restrictions or slight increases in interest rates, other markets such as Perth and Darwin could really struggle under such conditions.

Supply-side concerns

A key issue in Sydney is population growth and the lack of sufficient supply to support this growth. I am not sure the runaway prices in Sydney can be fixed without addressing supply-side issues.

Contrasting this market, the Victorian and South Australian state governments are good examples of state governments proactively responding to this need for supply. Measures to increase stock, such as creating new suburbs, have created a more balanced supply and demand situation in their respective housing markets and as such, markets more conducive to negotiation between buyers and sellers. 

Negative gearing

Another “hot button” regulatory issue is negative gearing. Negative gearing policies were hotly debated in the lead up to the 2016 Federal Election, and many are continuing to question whether reductions in tax concessions for investors will really benefit first-home buyers.

Negative gearing has been a long-established policy, and there have been unsuccessful attempts to alter it in the past. I am of the view that it is not negative gearing that has led us to the current affordability situation in the housing market, but rather supply-side issues and low interest rates.

It must be questioned whether abolishing negative gearing will be a positive for the national housing market as a whole. Removing negative gearing could be deemed a knee jerk reaction, running the risk of causing more harm than good. Markets like Perth are already in decline and could very well experience further falls in prices if tax concessions are removed for investors without introducing other measures to encourage this group to continue to invest.

It is also important to consider the rental supply these investors are providing to those who are not in a position to purchase their own home, and the fact that any changes to negative gearing incentives may increase the reliance upon the government to provide housing alternatives.

While housing affordability needs to be addressed and strict lending standards maintained, our leaders must be careful to ensure they take into account the disparities in the Australian property market before introducing any new ‘solutions’ that will likely affect each market differently.  

Despite this complex and volatile environment, there is still value in property as an investment, providing it is approached with careful consideration and ideally, with long-term goals in mind.

This is demonstrated by the latest CoreLogic Pain and Gain Report, which showed that over 9 out of every 10 homes resold for more than their previous purchase price over the September 2016 quarter.

To protect yourself from changes in the Australian property market, Australians would be wise to maintain a level-head, stick to a predetermined budget when looking to secure finance and obtain the appropriate professional advice to help make an informed property transaction.