Regardless of the economy, cycle or market conditions, property is always a hot topic of conversation.
And of course now there is all the concerns about COVID-19 and our property markets.
People love talking about interest rates, price growth, price declines, auction strategies and house prices in every corner of Australia.
They talk about it as though it’s in a league of its own, but this couldn’t be further from the truth.
The reality is, the property market isn’t an independent sector of the economy.
Rather, it’s inextricably linked to a myriad of other financial, social and political factors, all of which impact what your family home, or your next investment property, might be worth.
So, what are these factors?
1. Household formation
This oft-overlooked factor is actually more important than overall population growth, because what increases the demand for housing isn’t the number of people living in a city (or country), but the number of dwellings needed to accommodate them.
This works in a number of ways...
With more young adults staying home longer to save hefty house deposits, and the trend to more multi-generational households, or more friends and family members pooling their resources and buying a property to share, it's possible the number of dwellings required may decrease a little.
On the other hand, there are more older Australians living in one and two people household to even out the numbers.
2. Demographics
Projections from the Australian Bureau of Statistic estimate that over the next decade, our population will be approaching 30 million, and there will be almost 50 million Australians by the 2060s.
That’s an increase of nearly 400,000 people annually, all of whom are going to need somewhere to live.
Sure in the next little while, immigration will be lower due to closing of the borders, but once the fears of COVID-19 over, more and more will people will want to come and live in the safety of Australia.
Then factor in our current population’s penchant for knocking down existing dwellings and rebuilding, and it looks like we’ll require around 200,000 new dwellings every single year.
The question many investors ask themselves is, where will those new dwellings and the associated population growth and infrastructure spending – be?
That's not necessarily the right question.
The population growth corridors of our cities tend to be poor capital growth locations.
Abundant new supply is the enemy of capital growth.
At the same time these locations tend to be where new family and migrants move, and this demographic, which tends to have a little spare cash left at the end of the month, are areas where there is little ability to push up the value of properties – these are not high wage earning areas..
3. Affordability
Affordability encompasses dwelling prices, along with employment rates, interest rates, credit supply, GDP growth and inflation – whether or not someone can afford to buy a property is never just about the price tag attached to the home itself.
Unemployment, underemployment and the gig economy could have a big impact on property values as our workplaces undergo rapid change.
On the flipside, record low interest rates now mean the monthly mortgage repayments for most properties are cheaper than they’ve ever been.
As we are now entering a period of low inflation and low wages growth, investor should avoid areas blue-collar areas or young family suburbs and seek out suburbs where wages growth is higher than the state averages.
These are locations where people can afford to, and will be prepared to, pay a premium to live.
These are often the gentrifying middle ring suburbs of our capital cities.
4. Credit policy
Property investment is a game of finance, with some houses thrown in the middle.
Over the past few years, we’ve seen the significant impact changes in credit policy can have on our property markets.
Following the macroprudential measures APRA introduced in 2017, and the Royal Commission into the finance sector, we witnessed how the tightening in the availability of credit spelled the end of the housing boom.
The fact is, people simply can’t buy properties if they can’t access the cash.
5. National wealth, wage growth and job creation
Artificial intelligence experts have estimated that anywhere from 20 to 40 per cent of all jobs could be taken over by robots in the future, meaning there will be fewer employment opportunities for unskilled workers or those who perform repetitive tasks.
Of the jobs that remain, many could be moved offshore to take advantage of cheaper labour costs, further slashing local jobs.
This means we will have fewer people doing more productive work.
All of this could impact on buyers’ abilities to save deposits, secure finance and pay mortgages, and in turn, influence house prices.
6. Supply of dwellings
As I’ve already explained, increasing the supply of dwellings is going to be paramount as our population increases, and to do so, will involve large projects such as high-rise apartment towers and new suburb creation on the outskirts of our cities.
But clearing the land and knocking up some houses depends on council zoning, density regulations, transport links and other essential infrastructure – people won’t buy a house and land package 40km from the CBD if they can’t get into work, or if local schools, shops and medical facilities are lacking.
7. Consumer confidence
The six factors I’ve talked about so far only tell half the story.
Regardless of how readily available credit is, or how fast the population is actually growing, people’s perception of these things is just as important.
If consumers believe the market is heading downward, whether this is reflected by the statistics or not, it will influence their behaviour.
And of course, at times of financial uncertainty, with job uncertain tenure, people will hold off making significant purchasing decisions like a new home or investment property.
Buying property is an emotion-heavy process, and buyers – both owner-occupiers and investors – often let their heartstrings pull them in directions their head might not.
This is the one factor you have some personal control over, and, if you’re savvy, you could use it to your advantage to get ahead of the game.
When other buyers are stricken with FOMO and bidding up a storm for less-than-perfect properties, your research could help you stay calm and avoid buying into the hype.
Conversely, when others are paralysed by fear and bargains abound, your confidence in the advice you’ve received from your buyer’s agent or other professional could see you snap up a fantastic property – without even breaking a sweat.
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Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog and hosts the popular Michael Yardney Podcast.
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