The economic ramifications of the further fall in house prices in many parts of Australia are being widely debated. Hopefully, it will not cause any let-up in the pressure for further action to address the continuing crisis in housing affordability. Apart from anything else, these house price falls are unlikely to provide much relief for those in the private rental market, which is where the worst price pressures are being felt.
Given the number of comments I read suggesting our migration intake is a key reason for the housing affordability crisis, it is worth noting a few aspects of the figures reported today. Firstly, in Sydney, which still receives far more newly arrived migrants than any other state, “house prices have been stationary for 4 1/2 years which, with inflation, represents a 12per cent decline in real terms.” Secondly, Perth, which has the fastest population growth (mostly internal migration from other states), “leads the housing price decline this year.”
Given the often asserted assumptions that too many migrants and not enough houses are at the core of the problem, it is particularly worth noting the quote by Morgan Stanley chief economist Gerard Minack
Mr Minack said the most important influence in the market was not the growth in population nor the supply of houses, but rather the supply of finance.
“If lenders are unwilling to lend – or borrowers unwilling to borrow – to buy property, then demand will fall and prices with it,” he said.
I would add that this comment reinforces the big impact that excessively generous tax breaks and exemptions had on the big spike in housing prices – and the related serious decline in affordability – over the last decade. The excessive growth in demand came from too much money being available for speculation on rapid increases in house prices, which became something of a self-fulfilling property. Trying to let the air slowly of that particular asset price bubble will be very tricky, but very important if we are to avoid some of the disasters now befalling so many people in the USA due to plummeting house values. I think this makes it all the more important that the banks fully pass on any reductions in official interest rates which the Reserve Bank is tipped to make before the end of the year. (disclaimer: I have a not insignificant amount of mortgage debt, so obviously any cut in mortgage rates would suit me)