Are current market conditions setting us up for the next property boom?
The current property downturn is certainly seeing the market quite rattled. There are even whispers now that property investment is dead on a global level, in an opinion piece titled ‘The end of the global housing boom’. The reality is, this is not how the market works. I am here to tell you that it is highly likely that the current conditions are setting us up for the next property boom within the next 5 years.
Firstly, housing is a necessity, not an item that is likely to go ‘out of fashion’. Owning your own home in Australia is viewed as a basic right, and as a nation with an abundance of land, we are not quite ready to pack ourselves into apartments. This can be witnessed by the fact that apartment prices falling more than houses.
Secondly, let’s examine things on a finance level. The biggest factor pushing down prices has been pressure on the banks to restrict lending and effectively removing investors from the property market equation. However, banks make money by lending money so realistically speaking, the current credit crunch cannot be sustained. Speaking to Andrew Phanartzis of Property Association, he tells me, “All the banks want to do is weed out the bad debt and those who have jumped in too deep. Spread the risk some may say which is evident with the unprecedented number of first home buyers”. Home buyers are definitely dominating the market right now. The relaxing of some measures by banks should soon see the market re-invigorated with investor activity too.
In addition, nobody is looking to halt population growth, which In turn will drive the demand for more housing. This is a demand that we are told we can be easily met with the 20,000 odd vacant apartments in Sydney. Andrew explains “There is only one problem with this – Sydney growing at over 100,000 people per year and the average number of people per apartment is 1.9, so it will take a little over 4 months to fill those vacant apartments”.
This brings us to the final factor which is the supply of new dwellings. Whilst supply might be healthy right now, construction and building have started to fall. It is forecast that housing starts will drop by 22% over the next 2 years, with high-density dwellings taking the biggest hit, predicted to halve.
This ‘bust’ was primarily driven by lending restrictions. Currently, we’re seeing the re-emergence of first home buyers, banks relaxing investor guidelines, slowing in construction and population growth still bubbling along as planned. These factors clearly indicate that we are on track to see a welcome boom within the next five years, which is great news for long-term investors.