Housing markets are providing solidity and growth amid the economic fall-out from the drought, bushfires and the coronavirus.
Economist Stephen Koukoulas notes that housing markets are seeing further strong price gains, a tight rental market and a turning point in new construction.
Koukoulas, managing director of Market Economics, says average house prices have risen 9% from the low point in July 2019 (CoreLogic data) and are likely to hit fresh record highs by April, eliminating the earlier price falls.
“The concerns for the economy that occurred with the destruction on household wealth between the middle of 2017 and the middle of 2019 as house prices dropped over 10%, are unambiguously reversing,” he says.
“With first-home buyers stepping into the market, taking advantage of still decent affordability factors, house price rises are likely to continue through the course of 2020. Strong investor demand is adding to the upward price pressures.”
Koukoulas says the price increases are being driven by “the Economics 101 creed of supply and demand”. New supply has dropped in reaction to the sharp fall in new building approvals in the last few years.
The total number of new dwelling approvals was 239,700 in 2015, 234,300 in 2016 and 225,000 in 2017. These were record high numbers of building approvals.
“This construction boom was one reason why prices fell – a huge increase in supply that in some regions saw a glut of property on the market,” he says.
“Fast forward to today and the housing market is being influenced by what looks to be a sharp fall in new supply. In 2018, there were just 211,600 building approvals which dropped further in 2019 to 172,500 which was the lowest since 2012. Early signs suggest 2020 will see around 190,000 new dwelling approvals.
“The pipeline of new dwellings is weak. This is important because the source of demand for dwellings, Australia’s population growth, has been explosive, rising by 405,100 in 2016, 383,700 in 2017, 396,800 in 2018 and approximately 380,000 in 2019.
“There is no sign of any material pull back in population growth – which will fuel ongoing high demand for housing.”
Koukoulas says the interaction of demand and supply, which was recently a negative for house prices (high supply), will be a positive for the next year.