After a long period of deliberation I recently put forward the view that capital from Asia has been a material part of Australia’s dwelling price story over the past few years.
The projected near-doubling of FIRB approvals in the most recent financial year alone demands that we can no longer play down the impacts of foreign capital, be they good or bad.
My piece was quoted here in the Sydney Morning Herald, an article within which it transpires that NAB’s Chief Economist Alan Oster has arrived at the very same conclusion.
Today the SMH has another piece via Reuters discussing similar points.
As I elaborated here, like it or not, it’s happening.
Value of dwelling stock
I know from my own experiences in the markets over recent years that overseas-sourced money bound for both commercial and residential property markets tends to favour Sydney, Melbourne and to a lesser extent Queensland as its ultimate destination.
I thought it would be an interesting exercise to chart the movements in the total value of Australia’s dwelling stock over the last few years, which I have done below.
The first chart shows how the value of our dwelling stock has increased very significantly in New South Wales and Victoria (read “Sydney and Melbourne”), and to a disproportionate extent since 2011.
Of course, these shifts in in absolute values in part reflect that strong population growth in Australia is largely centered upon four capital cities.
Nevertheless the variances in the gains in the value of dwelling stock are stark.
As you can see in the chart below, the total value of dwelling stock in New South Wales increased by more than $430 billion in the three years to December 2014.
This is a 28 per cent gain and far in excess of the rate of population growth which is presently tracking at around 1.4 per cent per annum in New South Wales.
Victoria ($167 billion) has also witnessed a substantial three year increase in the value of its dwelling stock, also partly reflective of strong population growth over that period.
Western Australia ($71 billion) and Queensland ($54 billion) recorded more moderate gains over the same period of time.
On the other hand South Australia barely recorded a blip, actually going backwards in real terms, let alone before adjusting for population growth.
Meanwhile the smaller states and territories were actually in negative territory over the same three year time period.
Taken alone these figures are far from conclusive.
After all, the ABS Housing Finance figures and Lending Finance figures do suggest that owner-occupier finance and particularly investment lending has been focused upon the largest capital cities (refer to the links for more detailed analysis).
But this does not mean that we should ignore the point.
After all, markets can be curiously reflexive whereby expected gains (and losses) can become self-fulfilling.
In sentiment-driven markets perception alone can shift prices.